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Tax Talk: Caregiver Credits

Kenneth Pope LLB, TEP will be sharing with us a series of articles that support special need and disability estate planning 

Families of people with special needs have an underused tool at their disposal that can help save them money every year, Ottawa disabilities and estate planning lawyer Kenneth Pope tells

Thanks to changes announced in the 2017 federal budget, the caregiver credit is now available to more families, says Pope, principal of Kenneth C. Pope Law. It was previously only available to caregivers if the person lived with them, but that changed last year.

“The caregiver credit is now available to a family member, regardless of whether the adult child lives with them,” Pope explains, adding the credit becomes available once the child turns 18.

“We typically find that this credit is not used, it’s just overlooked. So when we back file that credit 10 years, the recovery is about $7,000 and it reduces taxes by $1,000 a year going forward.”

Pope says whether that individual with disabilities is living at home or elsewhere, families still provide a great deal of support, such as food, clothing, money and assistance to medical and health services and medication, and as a result, are eligible for the tax credit.

Of the 360,000 families who had a family member with disabilities on Ontario Disability Support Benefits, only about 15 per cent were eligible since they lived at home, but now all families of people with disabilities can take advantage of that tax break, he says.

“It’s a fantastic change,” Pope says. “What this means is, simplistically, 360,000 families would qualify for this particular credit when they file their 2017 returns and at $1,000 per family, times 360,000, that is a great deal of money.

“This is a substantial change, and of course, families don’t know this.”

Parents also have access to the disability tax credit, which is the credit of the child transferred to the parent. But because it is a tax credit, it is only useful to the parents if they pay taxes, Pope says.

The child must be “markedly restricted” or “take substantially longer” to do things or they can’t set and achieve goals.

“If the child is not approved for the disability credit, we go through the process of having a doctor complete the disability tax credit form” for those who fit the criteria, Pope says.

The form is submitted to Revenue Canada for approval and then adjustments are filed against the parents’ taxes. The disability tax credit can save the parents $1,600 each year, says Pope. In the case of claims back-filed for the maximum 10-year period, it would mean a recapture of $16,000.

Once the child is approved for the disability credit, they then qualify for the Registered Disability Savings Plan (RDSP). That program sees substantial government contributions, which are based on the family’s contributions. For example, if a family kicks in $1,500 per year the government’s portion will be $4,500, he says.

Pope says if that continues for 20 years that investment, along with annual interest in the five per cent range, will add up to $200,000. Although it can increase further with additional contributions.

While parents can be the account holders, the RDSP actually belongs to the child.

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