Families with a member with disabilities need to know how to take advantage of provisions of the taxation system that apply to them. I estimate that one in eight families could be affected by these provisions, and if yours is one, you need special tax planning advice.  I will explain how you can save thousands of dollars by taking advantage of special benefits that the government has put in place for families with a member with special needs.

There are three lines on the tax form that we will consider here, lines 315, 316, and 318. Canada Revenue Agency, has a useful, but somewhat less than revealing booklet, “Information Concerning People with Disabilities”. The booklet does not tell the whole story and is, in part, misleading in the narrow interpretation it gives. More about this problem shortly. Let’s start with line 315.

Caregiver Tax Credit

Line 315, the caregiver amount, comes into effect when there is a person, older that 18 years of age, who resides with you at some point during the year,and is dependant on you, due to mental or physical infirmity.   The dependant needs to have income of less than $14,000.00 per year for you to receive the maximun tax credit.  As well, the person must be your child or grandchild or you or your spouse or your common-law partner’s brother, sister, niece, nephew, aunt, uncle, parent, or grandparent.

If the person was with you any time during the year, you are eligible for the amount. The eligibility for the caregiver amount is effected by the dependant’s net income and conflicts with the use of line 306. Only one of these lines can be used and in most family situations , line 306 gives no real benefit. If a child over 18 receives Ontario Disability Support Program payments or a senior gets the Guaranteed Income Supplement, the persons modest income will not erode the tax credit used by the caregiver, but the same modest income will completely erode the line 306 tax credit.

You Can Claim for 10 Previous Years

What the booklet does not tell you is that, if you failed to apply for the caregiver amount, you may backfile, going back as far as  10 prior years, presuming the person with disabilities was over 18 for all of those years. With the taxation system as complicated as it is, it is good to know that you have another kick at the can. It doesn’t have to be Tax time....any time is the time to revise past omissions or errors. Using line 315 should put about $600 a year in your pocket.

Disability Tax Credit

Now we turn to line 316, the disability amount. In order to take advantage of this deduction, the person must be blind, have a severe mental or physical impairment which markedly restricts him or her in any of the “basic” activities of daily living (known in the health field as ADL), or requires life-sustaining therapy (e.g., kidney dialysis) at least three times a week for an average of at least 14 hours a week for at least a year. The blindness or inability to carry out activities of daily living must be “prolonged”. Currently, line 316 will reduce income taxes by $1,600 for a person over 18. If the person is under 18, an additional amount can be claimed.Reducing taxes by approximately $2200.00 per year. When a person has little or no taxable income,such as a person receiving ODSP or benefits, the tax credit, personally does them no favor, because they do not pay income taxes. The tax credit can be transferred to a tax paying family member, who helps them , to some extent with food, shelter or clothing. How? Just keep reading. We’ll get there soon.

The Disability Tax Credit Certificate indicates who can complete the document: physicians, optometrists, audiologists, occupational therapists, psychologists, and speech-language pathologists. It also lists the ADLs: walking, speaking, thinking and remembering, hearing, feeding and dressing,and elimination.

Courts Expand Eligibility

The courts have broadened the concept of ADL in cases brought by taxpayers. For example, the ability to feed oneself has been expanded to include the ability to prepare food. Ability to dress has been understood to include ability to do laundry. The “Information Concerning People with Disabilities” tells us nothing about this wider eligibility. Thus, if you have a disabled dependant, you would be well advised to get legal advice about how that person’s disabilities might fit, not just the narrow categories spelled out in the Certificate, but the wider understanding elucidated in court decisions.

Recapture $16,000 to $20,000!

Finally, let us turn to line 318. The amount claimed on line 316 on the dependant’s tax return can be transferred to a family member who pays income tax. The transfered amount is entered on line 318 of their tax return. This provision is used when the disabled person does not have taxable income sufficient to take advantage of the tax credit. This can be a major benefit to any family with an eligible member with special needs.In a maximun recapture situation the total recapture is approximately $16,000.00 to $22,000.00.

Because of the complex nature of the disability tax rules and the incomplete information provided by the Canada Revenue Agency publications and forms, it would be wise to consult a knowledgeable accountant or lawyer specializing in disability matters, especially before making the first disability-related claim.

Registered Disability Savings Plan (RDSP)

The best news when a person has been approved for the disability Tax credit they can then have a RDSP. If the person is 18 years old and on ODSP and if they or other family members contribute $1500.00 each year to the plan, the federal government will contribute $4500.00 each year. It is very interesting that the tax credit reduces taxes by almost the same amount each year. If these contributions are made for the maximun 20 year period and invested with a 6% return amount in the plan at the end of the period will be approximately $250,000.00! The money would continue to grow until it can be drawn upon at age 60. people with significant disabilities will become senior citizens with sizeable investments under the plan. For more on RDSP’s read Ken’s article he co wrote with Peter Merrick