Keep Enhanced Caregiver Tax Credits in Mind

By Terry McBride, Special to The StarPheonix July 18, 2011 4:06 AM  

Patrick, a widower, age 88, has been living in a retirement home for two years. His caregiver daughter, Maureen, visits him every day. She manages his
finances.

Maureen will benefit from the enhanced tax credits for family caregivers that were announced in the June 6 federal budget.

Patrick qualifies for the disability tax credit due to his cognitive and mobility difficulties.

He pays $3,000 rent per month for his retirement home, which provides meals, housekeeping, laundry services and transportation to medical appointments.

His medical expenses total $16,000 per year, including $10,000 for the “attendant care” portion of his retirement home rent plus $6,000 for prescription
drugs and dental bills.

Patrick has enough other personal tax credits (basic, age, pension and disability) to be non-taxable. He cannot save more tax from claiming his medical
expenses.

Maureen helps to pay for some of her father’s retirement home rent, which is higher than his total annual income.

Therefore, she claims her dependent father’s medical expenses on line 331 of her tax return. For 2010, she claimed the amount by which her father’s $16,000 medical expenses exceeded three per cent of his $26,000 net income, to a maximum of $10,000.

Patrick’s medical expenses saved her $2,600 of income tax (using Saskatchewan’s 26 per cent lowest-bracket tax rate).

ELIMINATING $10,000 LIMIT

Maureen is pleased to learn that the 2011 federal budget is eliminating the $10,000 limit on eligible expenses that can be claimed in respect of a dependent relative. That means for 2011, she can expect to be able to claim about $15,000 of Patrick’s medical expenses, which should save her about $1,300 more in income tax each year.

INFIRM DEPENDANT TAX CREDIT

For 2010, Maureen was unable to claim the federal infirm dependant credit for her father because his net income was considerably in excess of the $10,215 cutoff. However, she was able to transfer a small amount of his disability tax credit since he had enough other personal tax credits to make him non-taxable without it.

As Patrick’s taxable investment income and RRIF withdrawals steadily diminish each year, Maureen should be able to transfer more of her father’s disability tax credit and eventually even claim the infirm dependant tax credit.

Note that the federal budget 2011 increases the size of the infirm dependant tax credit, which accordingly increases the net income cut-off for the federal
infirm credit by $2,000, starting in 2012.

For 2011, note that the net income cut-off for a federal infirm dependant tax credit claim is $10,358, which is lower than the $14,639 net income cut-off
for claiming the Saskatchewan infirm dependant tax credit.

TAX-FREE SAVINGS ACCOUNT

When Patrick sold his house to move into the retirement home, Maureen helped him invest the sales proceeds to generate some interest income.

Because such investment income is fully taxable, Patrick has been moving $5,000 each January into his taxfree savings account, or TFSA, which is now worth $18,000.

Within a few years more, Patrick’s savings will be inside his TFSA and he will have considerably less investment income to report on his tax return. As
his small registered retirement income fund is gradually depleted, he should eventually become eligible for some guaranteed income supplement, or GIS.

GIS APPLICATION

Maureen should submit Patrick’s GIS application now, rather than waiting for his income to drop further. Let Service Canada automatically check his income tax return each year so they can begin paying GIS as soon as Patrick’s income is low enough to qualify.

Because Patrick receives Canada Pension Plan retirement benefits of more than $366 per month, he will not be able to qualify for the newly announced GIS topup that took effect on July 1, 2011.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of RJL. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. Securiies offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Financial planning and insurance offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.

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