One of the biggest concerns for families of seniors requiring residential facility care, is how to make that care more affordable. The federal and Ontario governments provide many tax credits that can improve a family's cashflow by reducing the costs of care. Here are some frequently asked questions we often hear:
1. Are all costs of living in a retirement residence eligible medical expenses?
Retirement home fees are broken down into two parts: the first is the cost of accommodation, which is essentially the cost of renting a unit in the residence. The second is the cost associated with care such as nursing salaries, meal preparation, and housekeeping. The institution will provide a receipt detailing the breakdown. Only those fees relating to the cost of care are tax deductible as eligible medical expenses. The accommodation charges are generally eligible for the Ontario Trillium Benefit (non-taxable monthly payment).
2. What tax savings will result from claiming care costs?
Eligible medical expenses are reduced by three per cent of a person's net income, with a maximum grind of $2,208 for 2015. The remaining eligible portion generates a non-refundable credit at a rate of 20.55% for 2015.
3. Are there any certifications required to claim the retirement home care costs?
Yes. Typically, Form T2201 (Disability Tax Credit Certificate) is completed by a qualified medical practitioner and sent to the Canada Revenue Agency for review and approval. This form certifies that the senior has a severe and prolonged impairment in physical or mental functions. As an alternative, when certain medical conditions do not qualify for the certificate, a letter from a qualified medical practitioner may be sufficient if it states that the patient is likely to be dependent on others in order to perform daily living activities and, therefore, requires care in a facility.
4. If the senior is approved for the disability tax credit (worth about $1,500 in tax savings per year), can this be claimed in addition to the costs of the retirement care?
No. If the senior claims the full care costs of the retirement home, they cannot claim the disability tax credit.
5. I've heard that retirement care costs could also be claimed as "attendant care" costs. How does this work?
The care costs also qualify as "attendant care" costs but these are limited to $10,000 per year ($20,000 in the year of death). It is possible to combine the disability tax credit claim with up to $10,000 of attendant care costs. This should be considered in the case where a senior moves into a retirement residence at the end of the year and only has one or two months of care costs in the retirement home.
6. The doctor indicated that my parent's disability occurred three years ago while they were living independently. Is there any tax relief?
Yes. Once the Canada Revenue Agency approves the certification, you can amend your parent's prior three tax returns to claim the disability tax credit. This could generate a tax refund of about $4,500.
7. I pay for my parent's care costs. Can any of the deductions be transferred to me?
You can claim the medical expenses of extended family members provided that your parent is dependent on you for support. The amount you may claim will be reduced by 3% of your parent's income to a maximum of $2,208 in 2015.
8. What other medical expenses can be claimed by seniors?
Many overlook the following items: diapers (if certified as incontinent), batteries for hearing aids, prescription glasses, scooters or other walking aids, orthopedic shoes, pharmaceutical prescriptions, and cataract lenses. You will need to submit appropriate receipts to support the claims.
9. What if my parent has private insurance?
Premiums for private insurance are also considered eligible medical expenses. Remember to reduce any claim for prescriptions, or other medical devices or services, by the reimbursement received from the plan.
10. Are there any ways to save Estate Administration Tax (i.e., "probate fees")?
While it may not be possible to amend a will if the senior lacks the appropriate capacity, there are circumstances when a trust can be used to avoid the 1.5% Estate Administration Tax.
To ensure that you are taking advantage of every tax break available, please contact us for a review of your family's tax situation.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article.
Karen Slezak, CPA, CA, CFP, TEP, Karen Slezak Professional Corporation, Partner – Tax
Karen is a partner in Crowe Soberman's Tax Group. She co-leads the firm's Succession, Retirement and Estate Planning (SuRE) Group. Karen takes a holistic approach to tax planning, looking beyond meeting the initial requests of her clients and proactively addresses needs that will arise in the future. Her long-term view results in success for her clients' businesses and personal lives.
Alan Wainer, CPA, CA, CPA (Illinois), Alan Wainer Professional Corporation, Partner – Audit & Advisory
Alan is a partner with Crowe Soberman. He co-leads the firm's Succession, Retirement and Estate Planning (SuRE) and Healthcare Groups. Alan's particular focus is working with Owners and Managers of Residential Care Facilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.