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Banka: Tax relief options for disabled
There are many instances where a person might need to consider getting some relief for a disability.
Some of that relief can be obtained through agencies such as Worksafe BC, if the disability is work related, or Service Canada if the disability is enduring.
These agencies are able to provide some monthly income to disabled persons.
The Canada Revenue Agency has also introduced measures to help both people dealing with a disability and for caregivers. The most under-utilized tax code benefit is the use of the disability tax credit.
This credit provides the disabled person with a tax credit of $7,546 against any other income which calculates to a $1,132 deduction against their federal taxes owing.
Each province also has a matching deduction of an equal or lower amount. In order to claim this credit, the claimant would need to take form T2201 to their doctor and have the doctor fill out the form. Then the form needs to be mailed to the regional CRA office.
There the form is reviewed and eventually, the taxpayer receives a letter from CRA indicating that the deduction has been approved indicating for how many years the taxpayer can take the deduction before another T2201 form must be filled out.
The next measure is a tax deferred savings plan called the Registered Disability Savings Plan .
The purpose of a tax deferred savings plan is to allow you to set aside money without paying tax until you actually take that money out of the plan.
The uniqueness of this particular plan is that payments can be made into the plan by a relative or other person for the benefit of the disabled person up to a lifetime maximum of $200,000.
These deposits can be matched upon application by the Canada Disability Savings Grant (CDSG)and the Canada Disability Savings Bond (CDSB). Interest can accumulate in the plan tax free.
The beneficiary of this plan must also qualify for the Disability Tax Credit. If the beneficiary improves and no longer qualifies for the Disability Tax Credit, this plan will need to be wound up in the following year.
The plans were initially set up to be in the care of the legal guardian, but as the population ages, the legal guardians are dying and the disabled person may not have the capacity to manage their own plan.
There has been a recent change to allow certain family members to become the trustee of this plan if the beneficiary of the plan may be considered incompetent to manage their plan.
The rule with this plan is when there is a withdrawal, the grants for the last 10 years need to be repaid in full.
The 2012 federal budget introduced a proportional repayment rule that says for every $1 withdrawn from the plan, $3 of any CDSGs or CDSBs need to be repaid.
There are two types of withdrawals that can be made from this plan. They are a discretionary disability assistance payment or a lifetime disability assistance payment.
Specific rules limit the maximum amount that may be withdrawn annually.
These rules were set up so that the plan would last the drawer for at least 10 years.
The budget proposed to increase the maximum annual limit for withdrawals especially if a doctor certifies that the beneficiary has a life expectance of five years or less.
If the parents of a disabled child have invested in an RESP, and the child is unable to enroll in post-secondary education, the budget has also allowed for the transfer of these funds into an RDSP on a tax free basis as long as the beneficiary of both plans are the same.
A tip here would be not to transfer the entire amount over at once, but to only transfer enough annually over a number of years to receive the CDSG and the CDSB in the RDSP.
Another tip would be to contribute up to the $200,000 maximum as soon as you can to get the additional grants, then leave the plan for 10 years so that when the funds are eventually withdrawn, there have been no grants added to the plan for the last 10 years, meaning none of those grants will need to be repaid.
There are some personal tax credits that are increased if the dependent is considered infirm.
These are the spouse or common-partner credit, the eligible dependent credit, child credit, caregiver credit and infirm dependent credit and the new family caregiver credit.
Only one credit may be claimed for each infirm dependent. These tax credits can be claimed for any person that was dependent on you for the entire year or a portion of the year. These tax credits are also reduced by any income earned by the dependent person.