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Many professionals are not well versed in the complicated area of medical and disability related tax benefits. Every Canadian has medical related expenses and 20% of Canadians have a disabilityor infirmity, so a summary of these measures may be helpful.
Allowable medical expenses
There are more than 120 different medical expenses, devices and equipment that can be claimed as medical expenses by those who qualify. Medical expenses include prescription medications, over-the-counter medications that are prescribed by a medical doctor and recorded by a pharmacist, medical and assistive devices, half the cost of an air conditioner if prescribed (maximum $1,000), the extra cost of gluten free food for people with Celiac disease, the cost of a lift or elevator (but not the cost of building an elevator shaft) and, in some cases, a portion of the incremental cost of buying a home more suited or adapted to aid a person with a disability. In some provinces, acupuncture is approved aswell as natural supplements and similar items. The eligibility of these types of items varies by province as the prescribing or administering practitioner must be licensed, and some provinces do not license acupuncturist, naturopaths and other non-MD type of practitioners.
Premiums for extended health and dental plans can also be claimed. In addition, you should ensure that medical expense claims are only made for the portion of an eligible expense that is not reimbursed by private, government or some other form of insurance.
Also, remember that claims can be combined for spouses and it is usually better to claim the amounts for the spouse with the lower net income, as the 3% of net income threshold that must be exceeded before amounts become creditable will be lower.
Disability Support Deduction
The disability support deduction was introduced in 2005 to allow certain items to be deducted from income, rather than claimed as a tax credit by individuals with physical or mental impairments, in respect of products or services related to working or going to school. The list is rather limited, but the deduction is available to taxpayers earning business or employment income or to students.
Eligible items include sign-language interpretation services, a teletypewriter or similar device, including a telephone ringing indicator, speech synthesizers, Braille printers, optical scanners, note taking services and voice recognition software. Notably, special tutoring or school services are now fully deductible. A complete list and the requirements for the items to be eligible can be found in section 64 of the Income Tax Act.
Disability tax credit
In 2005, eligibility requirements to qualify for the disability tax credit (DTC) were expanded. Individuals with multiple impairments that have a cumulative effect of creating a severe and prolonged restriction in an activity of daily living should be able to qualify for the DTC. In addition, eligibility requirements for impairments that are intermittent were clarified. A person need not be unable to work in order to qualify for the DTC. You may have clients who are eligible for the DTC but who have not thought about it because they are gainfully employed or self-employed. You may also have clients who are supporting a parent or child with adisability. In many of these cases the credit can be transferred to your client.
Despite the improvements in the DTC eligibility rules, persistence is important in ensuring that the application for the DTC is approved by the Canada Revenue Agency. Sometimes taxpayers may need to discuss with their physician or other qualified person the type of information that is needed on the application form to assist in a successful application.
If a taxpayer qualifies, their tax liability (or that of their supportingperson) will be reduced by a non-refundable tax credit.
If an individual qualified for the DTC and should have claimed it in the past, they may claim for up to ten earlier years if eligibility for the DTC is granted based on the impairment or disability which began in an earlier year.
As the maximum annual refund is approximately $1,400, there could be a substantial refund. However, care must be taken if a request to adjust previous tax returns is made as it could open prior years to scrutiny on other items.
Eligibility for the DTC will also make some medical expenses, which would otherwise not be allowable, eligible for the medical expense tax credit.
The ability to benefit from the new Registered Disability Savings Plan is also dependent on qualifying for the DTC (although claiming the DTC is not required).
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.