Income tax time is upon us and one of the more difficult areas to navigate is medical expense credits relating to disability and attendant care (including Nursing homes and other Institutional care facilities).
In this article, I will highlight the six rules that apply to medical claims. Some can be combined, while others are stand alone and will need to be carefully weighed out for maximum benefit to the individual claiming the expenses.
Under the first rule, you or a supporting person (as defined in the Income Tax Act) may claim as a medical expense the remuneration of a full-time attendant, or the expenses for full-time care in a nursing home if you have obtained a Disability Tax Certificate (form T2201). This form is generally completed by a medical doctor, practitioner or nurse. The form states the nature of the disability and the doctor must certify that you have a severe and prolonged mental or physical impairment as defined under the Act. “The attendant cannot be the spouse or common-law partner of the payer and cannot be under 18 at the time the remuneration is paid. However, the attendant can be the spouse or common-law partner of the patient, or another relative of the patient. The relative must be over 18.” This statement essentially means that the recipient of care, cannot pay their spouse or common-law partner to take care of them, but a child or another relative can pay them to do so (also for example: a brother can be paid to take care of his sibling).
You can claim certain attendant care expenses necessary for you to earn business or employment income as a deduction from income rather than an eligible medical expense. However, you cannot claim both, so it is important to determine which claim provides the greatest tax benefit.
The Canada Revenue Agency (CRA) has commented that all regular fees paid to a nursing home, including food, accommodation, nursing care, administration, maintenance, and social programming can qualify as eligible medical expenses. Additional personal expenses, which are separately identifiable, such as hairdresser fees, are not allowable expenses.
The second rule pertains to home care. It permits a deduction for a full-time attendant for you, your spouse or common-law partner, or your dependant. The attendant is for a patient in a self-contained domestic establishment in which the patient lives. The restrictions identified in rule #1 with regard to the attendant also apply here. This rule does not require a disability certificate on form T2201, but does require a qualified medical practitioner to certify in writing that by reason of physical or mental infirmity the patient is or is likely to be “for a long-continued period of indefinite duration” dependent on others for personal care and, consequently, in need of a full-time attendant.
The third rule provides for the deduction of the cost of full-time nursing home care for a person certified in writing by a medical practitioner to lack “normal mental capacity” and consequently be dependent now and in the foreseeable future on others for personal needs and care.
The fourth rule allows a medical expense credit for remuneration for full or part-time attendant care. The restrictions identified in Rule #1 with regard to the attendant also apply here. Form T2201 must be completed. The cost for the year cannot exceed $10,000 (or $20,000 in the year of death of the payer). For Ontario medical expense credit purposes the $10,000/$20,000 values are indexed. For 2016 they are $13,844 and $27,688. A claim under this rule can also be made in conjunction with the disability tax credit (see Disability Tax Credit description below).
The CRA allows a resident of a retirement home (as opposed to a nursing home) to make a claim under this rule in respect of attendant care. The resident must establish that an amount, in addition to the amount paid as rent, is paid as remuneration for attendant care. The amounts that may be eligible would generally be limited to salaries and wages paid to employees engaged in providing attendant care services.
Disability Tax Credit
The disability tax credit is available to an individual with a severe and prolonged mental or physical impairment. Form T2201, as discussed above, must be completed to obtain this credit. It can also be transferred to certain supporting individuals.
If a credit for full-time attendant or nursing home care is claimed under any of the first three rules above, the disability credit may not be claimed by anyone for the same disabled person. You may claim the credit that gives the greatest tax credit, but not both. However, if a credit is claimed under the fourth rule, it can be doubled up with the disability amount. Although a claim will most likely be made under the fourth rule where the remuneration paid is for part-time care, a claim may be made under the fourth rule in respect of full-time attendant care so that the disability tax credit may also be claimed, if this yields the better result.
The fifth rule provides that payments to a school, institution, or other place for the care, or care and training of an individual can qualify as medical expense. In order to qualify the institution must have the equipment, facilities, or personnel for the care and/or training of individuals suffering from the same handicap as the patient. A T2201 is not required under this rule. However, a written letter from a medical practitioner is required certifying that the individual suffers from the handicap and that the individual will benefit from attending the institution.
The final rule allows medical expense credits for remuneration paid for care or supervision provided for a patient qualifying for the disability credit in a group home in Canada, maintained exclusively for the benefit of individuals who have a severe and prolonged impairment. The CRA has commented that a claim may be made both for the medical expense tax credit under this rule, regardless of the amount, as well as the disability tax credit.
In all the above rules, the expense transfer provisions apply to permit deductions to be transferred to a spouse or common-law partner or person claiming the disabled person as a dependant.
For help in determining which rules apply to you and assistance in determining the best results for your claim, please contact Don Knechtel, CPA, CA.
Article written by: Don Knechtel, CPA, CA