Dec
10
By Fin MacDonald
Fin MacDonald has over 20 years’ experience providing retirement and Income tax planning advise. Readers are, however, cautioned that responsibility falls on the taxpayer to ensure that all information is adequate and correct.
All the best of the holiday season to all my clients and readers J Before going to this month’s topics, just a word about tax loss selling. The deadline for this year is December 24. With the losses in the markets this year, taking some losses may be in order. Losses are first applied against current year gains, then may be carried back to gains in any of the last three years, or carried forward indefinitely.
Medical Expenses
While I could write enough about medical expenses to completely fill the Beacon, I will highlight one area that a client’s enquiry caused me to research. His long-time companion, a German Shepherd had required $1,400 in surgery. Could he deduct this as a medical expense? Helping clients often requires knowing where to look to find the answer; that was the case here. Also, there had been some changes to expand the coverage.
When I returned the client’s call the first series of questions I put to him concerned whether he or his wife was blind, was profoundly deaf; had a severe and prolonged physical impairment that markedly had restricted the use of his or her arms or legs; was severely affected by autism or epilepsy; or had severe diabetes (for expenses incurred after 2013).
None of these conditions pertained to my client or his wife; therefore no deduction could be made for the dog’s care. If they had qualified, there were several more hoops concerning the dog’s training, the trainer and the purpose that would have had to be met.
Continuing with the service dog example, many people who live with a service dog would not be able to use the deduction. The Medical Expense Deduction requires that you or your spouse have tax payable. Otherwise the deduction is of no value. There IS a Refundable Medical Expense Supplement, but it is designed (requiring a minimum employment or self-employment income of $3,363) in such a way to exclude most people with disabilities, as well as most retired people.
British Columbia is one of a very few provinces that still have Medical Services Plan premiums. MSP premiums are NOT eligible for the medical expense credit. Payment to private medical plans such as extended health, or dental, or travel medical plans ARE eligible.
For medical expenses to be claimable there is a 3% of net income deduction. For example: a couple with one spouse makes $75,000 per year, the other $50,000. Either spouse may make the claim for the total family medical expenses. In this case, the spouse with the lower income would do so. The 3% deduction would be $1,500, so, if the total medical expenses were $3,000, $1,500 would be the eligible medical expenses. For 2015 tax returns $2,180 is the maximum 3% deductible; meaning that any income over $72,666.67 would have the same $2,180 deductible.
Medical expenses (except in the year of death, where 2 years may be claimed) may be claimed for up to 365 days. You may take any day in the year you are doing your tax return for, and go back 365 days. If your medical expenses in 2014 were not enough to get over the 3% deductible, taking a day in 2015 and going back the year may yield a deduction that works.
One last comment on medical expenses before examining the Disability Tax Credit; which providers qualify? At one time only MDs and dentists qualified as medical expenses. Now there is a rainbow of providers from acupuncture to yoga. To qualify as a medical expense the provider must belong to a college that was formed by an Act of the Provincial Parliament. Particularly in the counselling field one will find many providers with initials after their names indicating their training. If one is interested in deducting their fees, ensure they meet the Act of the Provincial Parliament requirement.
Disability Tax Credit (DTC)
The DTC is a non-refundable tax credit. This means that it may be used to reduce taxes payable, but if the person is not taxable then there will not be a refund. It is available to individuals who have had their medical practitioner complete a Disability Tax Credit Certificate (T2201), which has then been approved by the Canada Revenue Agency (CRA). In the field of disability income and supports there are a number of providers. For example there are Canada Pension Plan (CPP) disability payments, there are Provincial disability payments, there are short and long-term disability payments from private or work-based insurers and there are Workers’ Compensation payments. EACH OF THESE PROGRAMS HAS ITS OWN REQUIREMENTS TO QUALIFY. So, for example, the fact that a person has qualified for CPP payments does not necessarily mean they will qualify for the DTC.
To qualify for the DTC a person must have, to quote from the CRA: “A qualified practitioner must certify on this form that you have a severe and prolonged impairment in physical or mental functions. An impairment is prolonged if it lasted, or is expected to last, for a continuous period of at least 12 months.” The impairments that qualify are: “speaking, hearing, walking, elimination (bowel or bladder functions), feeding, dressing, and mental functions necessary for everyday life.” A “qualified practitioner”, depending on the disability, is an MD, an Occupational Therapist, a Physiotherapist, a Psychologist, an Audiologist or an Optometrist.
Once a person has qualified for the DTC there are a number of potential benefits. If the person is over the age of 18, the non-refundable tax credit for 2015 is $7,898, which, when the BC credit is included, provides $1,584 in tax relief. For a person under 18 the reduction in tax payable (which may be transferred to a parent or other supporting person) is $2,126. Depending on what year the disability began, tax returns for up to 10 years may be re-assessed to implement these credits.
Other benefits of having the DTC include being eligible for a Child Disability Benefit (if the person with the DTC is under 18), being eligible for the Registered Disability Savings Plan, and, if the person has employment income that qualifies for the Working Income Tax Benefit (WITB) they may qualify for the WITB Disability Supplement. In the provincial field, the DTC allows for a further $3,000 deduction in calculating a person’s income for Medical Services Plan Premium Assistance. So, even if a person does not have tax payable the DTC may provide the gateway to other programs that will save the person money.
Election recap
The new Trudeau government has announced that Parliament will sit in early December. House Leader LeBlanc says the goal is to have personal tax changes in effect by Jan 1. As I write this (November 10), for the December – January issue of the Beacon, it is unclear whether the various measures on tax, Child Tax Benefit and Tax Free Savings Accounts will be implemented for the 2015 or the 2016 tax year. I will follow up on these in the February issue. Also in February I will look at preparing for your 2015 tax return and how the changes may affect you. As always my goal is to Help You Keep More of YOUR Money.