People with physical and mental disabilities often face serious financial challenges related to inherent earning limitations or direct out-of-pocket expenses.
Fortunately, government support is available, but it can it can be a dizzying journey to understand the type, value and interaction of tax measures and direct financial assistance designed to assist persons with disabilities. As well, the disabled individual and their families generally need to take coordinated financial and estate planning steps to optimize those public sources.
To get started, it helps to understand what direct financial assistance and relieving tax measures are available.
Direct financial assistance
Canada Pension Plan / Quebec Pension Plan
The CPP/QPP disability benefit is available to people who have made recent CPP/QPP premium payments while they worked. The disability must be both:
- Severe, were a person is incapable of regularly pursuing any substantially gainful occupation, and
- Prolonged – the disability will prevent a return to work at any job in the next 12 months, or is likely to result in death.
The maximum monthly disability benefit a qualifying disabled person can receive in 2008 is $1,077, plus a maximum monthly benefit of $208 for each dependant child of a disabled contributor. These are related but separate applications that must be made using forms available through Service Canada.
Child disability benefit
Based on family net income, the federal government will pay as much as $195 per child each month to families with children qualifying for the disability amount (see below). Tax form T2201 must be completed and approved by CRA in order to qualify, and the payment is then delivered as part of the monthly Canada Child Tax Benefit payment.
Provincial support programs
Some provinces have standalone disability support programs, while others recognize disability as a special qualification within the overall social support system. Generally though, for participation or qualification, the disability must be certified by a licensed physician using provincially prescribed criteria and forms.
Entitlement is reduced or eliminated where earnings or assets exceed regulated thresholds. In some provinces it may be possible to set up a discretionary trust (sometimes called a “Henson trust” for the Ontario case first litigated on the issue) to keep assets available for the person’s benefit but outside of this calculation. (See the link at the end of this article for more on Henson trusts.)
The composition of service offerings, cost reimbursements and direct financial assistance varies considerably from province to province. The maximum annual, direct financial assistance disabled persons receive from provinces, on average, comes in just under $10,000.
Individual income tax relief
Tax measures commonly available to assist persons with disabilities generally fall into three categories. These include:
- Deductions: Qualifying items reduce the taxable income upon which relevant federal and provincial tax rates are applied to arrive at initial tax liability.
- Non-refundable tax credits: Once tax liability is calculated, these credits directly reduce that liability but cannot take it below zero. The qualifying amount is multiplied by the applicable federal or provincial rate (usually the lowest bracket rate) to arrive at the credit value. For 2007 reporting, the federal rate is 15%.
- Refundable tax credits: These may result in an amount payable to the individual even where tax liability has been reduced to zero.
Focusing on the 2007 tax reporting year, the following is a bit of a roadmap that identifies key items, and attempts to put them in context with one another.
Disability amount
This is a non-refundable credit, available both federally and provincially. Using tax form T2201, the disability must be certified by a qualified medical practitioner as being both severe and prolonged.
- Severe: Blindness, conditions requiring life-sustaining therapy, a marked restriction in speaking or hearing, walking, feeding, dressing, elimination or a marked restriction in everyday mental functions.
- Prolonged: Lasting, or expected to last, continuously for at least 12 months.
The basic federal amount is $6,890, with a supplement worth as much as $4,019 for children under age 18. Taken together, the maximum possible federal credit is $1,636.
The maximum basic credit range at the provincial level ranges between $386 and $758.
Disability supports deduction
A disabled individual may deduct qualifying, out of pocket expenses incurred to work, go to school, or conduct grant-supported research. The individual may not deduct amounts already claimed under the medical expense credit (whether claimed by the individual personally or on his or her behalf as a dependant), or amounts already reimbursed by health insurance plans or through other non-taxable payments.
The deduction cannot exceed the person’s earned income for the year, which generally includes:
- Employment income and net self-employment income;
- the taxable part of scholarships, bursaries, fellowships, and similar awards;
- net research grants, and
- earnings supplements and financial supports under most government sponsored employment programs.
For students at designated institutions however, the deduction may be as much as $15,000 more than their earned income.
Medical expenses
An individual may claim eligible medical expenses paid, whether incurred in Canada or elsewhere, in any 12-month period. Special rules apply to attendant care expenses, whether the care was received at-home or in an establishment. Eligible amounts can be claimed as a medical expense, or as a disability support deduction.
This is a non-refundable tax credit, equal to expenses that exceed the lesser of:
- $1,926, or
- 3% of the disabled individual’s net income.
This number ranges between $1,620 and $1,936 in different provincial formulas.
As indicated above, it is not possible to claim both the supports deduction and the medical expense credit for the same cost. Accordingly, a test calculation should be run to determine which of the two yields the best net tax result.
Refundable medical expense supplement
This is a refundable credit designed to assist people with very low incomes who claim either the disability supports deduction or the medical expense credit. Subject to a clawback where family net income exceeds $22,627, this federal credit can be worth as much as $1,022.
Income tax relief for dependants
Caregiver amount
This non-refundable credit is designed for individuals providing in-home care to an immediate family member or certain close relatives. If this credit is claimed by anyone, the infirm dependant 18 or older credit (which is of equal value) may not be claimed. Furthermore, this credit is reduced when the eligible dependant credit is claimed for the same live-in person. The federal credit is worth $623; provincial credits range from $225 to $442.
Child care expenses
The calculation of this credit can be complicated, even without disability issues to consider. For present purposes, be aware that there are provisions to guard against double counting where concurrent claims are made for the disability amount or the medical expense credit.
Children’s fitness tax credit
This is a new non-refundable federal credit, introduced in 2007. Children eligible for the disability amount, this credit may be doubled to be worth as much as $150. The basic fitness tax credit – 15% of $500 spent on eligible expenses – is generally worth $75 to families. For disabled children, the eligible amount parents can claim is doubled to $1,000, making the credit worth $150.
Transferred amounts
An individual may be able to claim certain amounts, notably the disability amount and the medical expense credit, transferred from a spouse, common-law partner or dependant.
GST/HST relief
Many goods and services used by persons with disabilities are not subject to goods and services tax/harmonized sales tax, whether by exemption or rebate. These include:
- Most health care services;
- Personal care and supervision programs while a primary caregiver is working;
- Prepared meal delivery programs;
- Public sector recreational programs designed for persons with disabilities;
- Medical devices and supplies.
Coordinate your private planning options
In order to optimize access and use of government financial and tax supports, individuals and families must conscientiously manage their income and assets. Many times this includes family estate planning, up-to-date wills, beneficiary designations, powers of attorney and the use of different trust structures.
What will be most interesting in the coming years will be to see how these planning activities are affected by the availability of the new registered disability savings plan.