Use health-related expenses to trim your tax bill.
The list of medical and disability tax credits and deductions is longer than most taxpayers realize. Don't let eligible claims slip through your fingers.
The Income Tax Act offers a wide range of tax credits and deductions to persons who are ill or disabled, or support a relative with such infirmities. It pays to understand these items so you can claim them on your tax return. Otherwise you'll end up paying unnecessary tax.
If you're ill or disabled - or help support an ill or disabled dependent- you need to be aware of the following credits and deductions:
Disability credit. Taxpayers with severe and prolonged mental or physical impairment can claim a disability amount of $7,546 (2012 amount), which equates to a federal tax credit of $1,131.90. To qualify, your ability to perform a "basic activity of daily living" must be "markedly restricted" as certified by a doctor on form T2201. The impairment must have lasted, or be expected to last, at least a year.
Medical expenses. Once over a threshold amount, you and/or your spouse can claim medical expenses for yourself, each other, and dependent low-income children, parents, grandparents, siblings, aunts/uncles and nieces/nephews of either of you.
The threshold amount is 3% of income or, if your income exceeds $70,300, a flat $2,109 for the 2012 tax year. Once over the threshold amount for the year, you can recover about 25¢ for each dollar you spend on qualifying expenses. It's usually best to combine all family medical expenses on one return, and for the lower-income (and thus lower-threshold) spouse to make the claim. Of course, that spouse must owe enough tax to use up the credit.
When claiming medical expenses, you can pick any 12-month period ending during the year. This allows you to plan for the credit based on when you have had, or expect to have, large medical expenses.
The list of qualifying medical expenses is extensive and includes:
- Payments for non-insured health care services received from physicians, dentists, psychologists, and many others.
- Prescription drugs and prescription eyeglasses.
- Premiums for private health insurance plans such as drug, dental and out-of-country coverage (even if you pay the premiums through payroll deductions by your employer).
- Traveling expenses if you need to travel more than 40 km for medical services. In addition, you may claim food and lodging expenses if you have to go more than 80 km. This is an important one for farm families.
- Attendant care, and care in a nursing home or other institution.
- Various medical devices such as hearing aids, wheelchairs, and dialysis machines.
- Guide dogs and expenses for maintaining them.
- Certain home renovation and moving expenses incurred to accommodate a disabled person.
For more detail on some of these items, check our medical expense article on page 22 of the September 2002, issue of Country Guide.
Refundable medical supplement. Worth up to $1,119 for 2012, this refundable tax credit is available to working individuals with high medical expenses and family incomes of no more than $24,783. In a tax context, "refundable" means you get it even if your income is below the taxable threshold. The amount is reduced by family net income greater than $24,783.
This lesser-known credit can be claimed in addition to the medical expense tax credit, and is commonly missed as a refundable credit on tax returns. For obvious reasons many farm families qualify, as do students and others whose income happens to be low in years when their medical expenses are high.
Attendant care deduction. If you can claim the disability tax credit, you can deduct some or all of the costs of an attendant needed to help you earn certain income or go to school. Alternatively, you can claim attendant expenses as a medical expense if you have no "earned" income.
Disability credit transfer. Disabled individuals who cannot take advantage of all or part of this credit can transfer it to a spouse or other qualifying person who supports them.
Disability credit supplement. In addition to the $7,546 disability amount that can be transferred from an individual, you can claim a supplement of $4,402 for eligible disabled children under 18 at the end of the year. This claim is reduced by child care or attendant care expenses claimed for the disabled child.
Infirm dependent credit. You can claim this credit for certain relatives who are 18 years or older before the end of the year if they are dependent on you because of a mental or physical infirmity. While the individual does not need to live with you or qualify for the disability tax credit, his/her infirmity must create dependence on you for a considerable period of time. You can claim a maximum of $6,402 for 2012. This equates to a federal tax credit of $960.30 (15% x $6,402). The amount available for the credit is reduced on a dollar-for-dollar basis by the dependent's income over $6,420.
Caregiver credit. This credit is available if you live with and provide in-home care for a parent or grandparent 65 or older. Other relatives who are dependent because of a mental or physical infirmity may also be eligible. The caregiver amount for 2012 is $4,402, again equating to a credit against your federal taxes of $660.30. The net income threshold is $15,033, and no credit is available if the dependent's income exceeds $19,435.
Child care deduction. You or your spouse might have paid someone to look after your child who was 16 or older and had a mental or physical infirmity. If you incurred these expenses so one of you could earn income or go to school, you can deduct them - up to $7,000 for a child (depending on the child's age) who does not qualify for the disability amount and up to $10,000 for a child who does qualify.
How to Claim Missed Deductions
If you've read this article and now realize you neglected to claim eligible medical expenses in the past, all is not lost. The Canada Revenue Agency (CRA) normally allows you to make changes to your return up to 3 years after you filed it.
Just write a letter to the Taxation Centre where you filed your return. Include all supporting documents and a CRA Form T1-ADJ (Adjustment Request). You can get this form - and even change your return if you'd prefer - at the CRA website www.cra.gc.ca. If the 3-year period has expired, CRA may still allow changes to your tax returns under the "Taxpayer Relief Provisions" in Information Circular IC 07-1.
The bottom line here is that rules relating to medical tax credits and expenses are both complex and confusing. It's best to have your tax advisor analyze your particular situation and determine the claim and/or mix of claims that gives you the best tax advantage.