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Taxes and Caring for Parents – What costs are deductible (2016 and prior years)?

FOR NEW RULES FOR 2017 AND FUTURE, Click here –> “Taxes and Caring for Parents – What costs are deductible and who can claim them (2017 and future)”

These rules in this article are still applicable for 2016 and earlier tax returns – which can be amended for up to 10 calendar years if you need to fix errors and omissions in your returns.

Do you have aging parents who may soon be unable to look after themselves? Will you or your parents be faced with the costs of nursing home care and other medical needs? Monthly nursing home costs or fulltime in-home care can easily escalate to tens of thousands of dollars per year. In addition to these fees, there may be other costs for additional services required. When dealing with expenditures of this magnitude, you need to know which costs are deductible for tax purposes to reduce your financial burden.  This is a complex topic, and I struggled with this article.  If you have suggestions for improvement – clarification, further information, etc. that would help, or if you find any errors, please send me an email.

Tax credits or deductions available for your parents

The purpose of this article is to review the deductions available to you as a child supporting your parents. Of course, there are a number of deductions available to be claimed by your parents as they are incurred. They include medical expenses, the disability credit, and disability supports deduction to name a few. For more information on what deductions are available, see the Canada Revenue Agency publication RC4064 “Disability-Related Information” or telephone us.

Tax credits or deductions available to you for taking care of your parents

There are a number of credits that you may be able to claim on your personal tax return related to caring for your parents. There are distinct criteria for eligibility to claim these credits, one of which may be that your parent must be dependent on you for support. While these claims apply when your parents become dependent on you, they do not always need to live with you. The following two paragraphs of guidance were extracted or quoted from older interpretations published by the Canada Revenue Agency (CRA), particularly Interpretation Bulletin IT-513, which has been discontinued.

Generally, a person will be dependent for support on an individual if the individual has actually supplied necessary maintenance, or the necessities of life, to the person on a regular and consistent basis. For example, when an elderly parent who is not wholly self-supporting because of mental or physical infirmity lives with a married child, and the child provides the necessary food, lodging, clothing, medical care, etc., the parent may qualify as a dependant of that child.

In general terms, support involves the provision of the basic necessities of life such as food, shelter, and clothing. A person may be confined to a hospital for all or substantially all of the year because of mental or physical infirmity and the cost of hospitalization is paid by a provincial government. The latter fact, in itself, does not necessarily mean that the person was not supported by an individual. If expenses such as clothing, comforts, and medical premiums were paid by the individual (e.g. child) on those occasions when the dependant (e.g. parent) was able to be out of hospital, then, ordinarily, it is recognized that the individual supported that person.

The six most common amounts you may be able to claim for your parent (or another dependant, depending on your circumstances) are discussed below. The key characteristics of all but the family caregiver amount, which is relatively straightforward, are summarized in the table at the end of this article. Amounts that can be claimed are normally subject to income thresholds over which tax savings are reduced or eliminated.

    1. Caregiver amount (line 315 of personal tax return) [REVISED FOR 2017 TAX RETURNS]

      If at any time during the year, you provided living space for a dependant, you may be able to claim the “caregiver amount” (not to be confused with the Family Caregiver Amount discussed below as item #6). If the person does not live with you, consider the “amount for infirm dependants age 18 or older” to see if you may be able to use that credit. While this article is about parents, the caregiver amount may also be claimed for a dependant who is a child, grandchild, grandparent, brother, sister, aunt, uncle, niece, or nephew to you or your spouse (or common law partner). The person must meet all of the following criteria:

      1. been 18 or older when he or she lived with you; and
      2. been dependent on you due to mental or physical infirmity or, if he or she is your or your spouse’s parent or grandparent, be age 65 or older.

      Note that a parent or grandparent need not be infirm. This deduction cannot be claimed for a person who was only visiting you. The dependant’s income must be below a prescribed limit.  If the Amount for an Eligible Dependant is claimed for the same person, it will reduce the caregiver amount, often eliminating it completely because it is a higher amount.

    2. Amount for infirm dependants age 18 or older (line 306) [REVISED FOR 2017 TAX RETURNS]

      You cannot claim this credit if you have also claimed the “caregiver amount” for this person. Infirmity is not specifically defined. The amount for infirm dependants age 18 or older must be such that the person is dependent on you for a considerable length of time but it need not be a “severe or prolonged impairment”. No disability certificate is required. Being a dependant must result from the disability, not from other reasons. A temporary illness is not considered an infirmity. While this article is about parents, the dependant may also be a child, grandchild, grandparent, brother, sister, aunt, uncle, niece, or nephew to you or your spouse (or common law partner). The person must meet all of the following criteria:

      1. age 18 or older;
      2. mentally or physically infirm;
      3. dependent on you, or on you and others for support; and
      4. living in Canada at any time in the year (but not necessarily in your household).

      The dependant’s net income must be below a prescribed limit.

    3. Disability amount transferred from a dependant (line 318)

      You may use the disability amount transferred from a dependant if your parent (or other dependant) has a disability credit, and is unable to use it himself or herself. We will not discuss the eligibility requirements for claiming the disability credit in this article.

      To be eligible to claim a transfer of all or part of your dependant’s disability amount, he or she must have lived in Canada during the year and was dependent on you because of mental or physical impairment. As well, one of the following situations has to apply:

      1. you claimed an “amount for an eligible dependant” (formerly called the “equivalent to spouse amount”) for that person, or you could have made this claim if you didn’t have a spouse and if the dependant did not have any income, or
      2. the dependant was a child, grandchild, parent, grandparent, brother, sister, aunt, uncle, niece, or nephew to you or your spouse (or common law partner), and you made a claim for either the “amount for infirm dependants age 18 or older” or the “caregiver amount” for that dependant, or you could have if he or she had no income and had been 18 years of age or older during the year.

       

      While not necessarily living with you, you must be able to show that there was a dependency relationship as described earlier. The amount, if any, of the disability credit transfer depends on the dependant’s income. In certain very specific situations, the person with the disability may be able to claim the “Disability Supports Deduction” if he or she must pay for personal care. That deduction is not transferable.

    4. Amount for an eligible dependant (formerly the equivalent to spouse amount) (line 305)

      To be eligible to claim the eligible dependant credit for providing in-home care for an adult relative, all of the following criteria must be met:

      1. you do not have a spouse or common law partner,
      2. you maintain a dwelling in which you and the relative ordinarily reside,
      3. you support this person as a dependant, and
      4. the relative is your parent or grandparent. If under age 18, or mentally or physically infirm, the person may also be your child, grandchild, brother, sister, aunt, uncle, niece or nephew.

      Only one person in a household may make a claim under this provision, even if there is more than one dependant. The most frequent use of this claim is by single parents for a dependent child.

    5. Medical expenses paid on a dependant’s behalf (line 330)

      You are eligible to claim medical expenses paid for a parent, grandparent, brother, sister, aunt, uncle, niece, or nephew to you or your spouse (or common law partner) who lived in Canada at any time in the year and depended on you for support. They need not live with you but you must be able to prove dependency, as described earlier. You must have paid the medical expense, and it is the date of payment that determines when it is eligible to claim. For you, your life partner and your minor children, the total medical expenses must exceed the lesser of an annual threshold amount (e.g. federally $2,237 in 2016/$2,268 in 2017 and $1,678 for P.E.I.) and 3% of your net income before you can claim them.

      For other dependants, the rules are a little different. First, it is only the amount in excess of 3% of your dependant’s (i.e. parent’s) net income that you can claim. This is the same rule as for your children age 18 or over. The same expenses apply here as for your own medical. There is an extensive list contained in the Canada Revenue Agency publications RC4065, Medical Expenses  and their Income Tax Folio S1-F1-C1 Medical Expense Tax Credit. You may also wish to refer to our publication  Medical Expenses – What an You Claim?, which attempts to summarize the rules in a more simplified fashion.

      Attendant care and nursing home costs as medical expenses

      If you are paying expenses for the care of your parent because he or she is infirm, you may also be able to claim certain costs as a medical expense. “Attendant care” expenses include wages paid to people for food preparation, housekeeping services, laundry services, health care, social activity programming, transportation and certain other costs. Costs of rent, food, supplies and operating costs are not included in this definition. Attendant care expenses can be:

      • the cost of a person hired to help with in-home care;
      • a portion of the costs paid to a retirement home (the retirement home must provide a breakdown of their fees); and/or
      • nursing home costs.

      To claim attendant care expenses for a retirement home, your parent will need a disability certificate (Form T2201) completed by their doctor.  Just a letter from a doctor indicating that they need full time attendant care is satisfactory if they are in a nursing home (certifying a need for help because of  mental incapacity for the foreseeable future), or if they have a full-time attendant at home (certifying mental or physical incapacity). Attendant care costs cannot be paid to your spouse or to a person under age 18.

      Generally speaking, if a person qualifies for the disability credit, then you can claim either the disability credit or the attendant care fees for full-time care in the person’s home or for a nursing home, but not both. A retirement residence, community care home or assisted living facility is not a nursing home.  All costs for a nursing home can be claimed if applicable, including room and board, but only salary and wages paid for attendant care will qualify for people living elsewhere.

      In some cases, you can claim the disability credit and the attendant care fees where you claim only salaries and wages for the attendant, and claim no more than $10,000 of these salaries and wages ($20,000 in year of death).  If you pay attendant care wages, for example, of $15,000, you can choose to claim only the attendant care, only the disability credit, or $10,000 of wages plus the disability credit. For care paid directly, such as in your own home, you would know these figures.  However, a nursing home or retirement residence would need to provide you with a breakdown of their fees. Some nursing home administrators may not be aware of these rules, in which case you should have your tax advisor contact them.  Of course, you can only claim the disability credit if you have a completed Form T2201 – a letter from a doctor is insufficient.  See RC4064, Disability–Related Information for details and examples about this deduction.

      Because of the complexity of this area, I would like to review it again. If you are claiming the full cost of care in a nursing home, or if you are claiming the cost of a full-time attendant in your own home, you can claim either the disability credit or the attendant care costs, but not both.  When living in a retirement home (not in a nursing home), you have two choices:

      • claim the disability credit, and a maximum of $10,000 of attendant care expenses ($20,000 in year of death), or
      • claim only the attendant care expenses.

      If you wish to claim only the part of the nursing home fees that are for attendant care wages (as provided to you by the home), then you have the choice noted above – you can claim the disability credit and up to $10,000 of attendant care costs.

    6. Family Caregiver Amount [REVISED FOR 2017 TAX RETURNS]

      The Family Caregiver Amount is an amount available if your parent (for the purposes of this article) has an impairment in physical or mental functions.  It is adjusted annually for inflation – 2016 is $2,121.  It is added to another credit for which you are eligible for your parent.  For your parent, it is added to the Caregiver Amount (item #1 above) or Amount for an Eligible Dependant (item #4 above).  (For a child, it is available as a separate credit.) You must have a signed statement from a medical practitioner showing when the impairment began and what the duration of the impairment is expected to be.

      Conclusion

      If you have concluded that these rules are confusing and complex, you are correct. You may be wise to seek professional tax advice to ensure you maximize your claims.Costs for medical and nursing care can be devastating financially (as well as emotionally), and can impact your entire family. While this article reviews some of your tax savings options, you should also review your financial readiness to meet such liabilities. Are there sufficient personal savings, long-term care or other insurance, and/or availability of family members to provide care? Or, will you need to rely on government subsidized nursing care? Please call us if you wish to review your options.

      Taxes and Caring for Parents

      Summary of Tax Credits Available for Dependent Parents (and maybe other dependants)[Note – the Family Caregiver Amount is in addition to this table]

      A B C D E
      Caregiver Amount Infirm Amount (see also the Family Caregiver Amount) Amount for Eligible Dependant (formerly “Equivalent-To-Spouse”) Transfer of Disability Amount Medical Expenses
      Tax return line no. for federal / PEI Line #315 / 5840 Line #306 / 5820 Line #305 / 5816 Line #318 / 5848 Line #330 / 5868
      Must parent be dependent Yes Yes Yes Yes Yes
      Must parent be living with child Yes No Yes No No
      Must parents be age 65 or older Yes
      (or infirm)
      No No No No
      Is amount shareable between taxpayer and spouse Yes Yes No Yes Yes
      Other information Maximum one claim per dependant; not avail. if “B” claimed by anyone, or if “C” claimed by anyone other than taxpayer.  “C” will reduce the amount claimable. Not available if A claimed by anyone, or if “C” claimed by anyone other than the taxpayer Deduct claims by 3% of dependant’s net income or annual prescribed threshold

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum