Advisor analysis – Frank Jasek

Having two elderly parents move into the family home can involve quite an adjustment. But as Bill and Amy have discovered, caring for aging parents can have an impact on a family’s finances as well. The good news: there are numerous tax credits and deductions to help ease that financial burden.

For starters, Bill and Amy should have Bill’s parents apply for the disability tax credit certificate with Canada Revenue Agency using Form T2201. That requires a professional such as a medical doctor, to certify that the person in question suffers from a severe and prolonged (lasting for at least 12 months) mental or physical impairment.

Bill’s father would certainly qualify for the certificate, but his mother might be eligible as well, since a severe impairment is defined as blindness, the need for life-sustaining therapy (such as dialysis) or an inability to perform basic activities of daily living, including walking, speaking or hearing, feeding or dressing yourself, or thinking and remembering, for example.

Once they’ve received the certificate, Bill’s parents could apply for the disability tax credit, worth a little over $1,200 in tax savings per year. If there is a credit left over that Bill’s parents aren’t able to use, it can be transferred to Bill and Amy to reduce their taxes (since the parents are dependent on the couple).

In addition, if Bill’s parents are over age 65 (a safe bet), and their income is less than $19,824 each, Bill and Amy are eligible for a caregiver tax credit of $4,490 per person (for a tax saving of about $1,000) as long as the parents continue to live with them. That amount increases by an additional $2,040 per year each if the parents are dependent on Bill and Amy because of physical or mental infirmity. Caregivers qualify as long as they’ve earned enough money to pay taxes that year. If Bill’s parents move out, Amy and Bill could still qualify if the parents lived with them at any time during the year.

Bill and Amy can also recoup some of the money they’ve spent on health-related extras from adult diapers to prescription drugs, medical equipment and respite care by claiming medical expenses for Bill’s elderly parents. The caveat: they will need to reduce the claim by 3% of the parents’ income. If the parents’ income is $15,000 per year, for example, and medical expenses for Bill’s father amount to $1,000, they can claim only $550 ($15,000 x .03 = $450 and $1,000 – $450 = $550).

If Bill and Amy hire part-time help to care for Bill’s parents, they can claim attendant care expenses of up to $10,000 along with the disability tax credit. They should be careful to keep receipts. Once Bill’s father has been transferred to a nursing home, however, Bill and Amy should claim the cost of nursing home care as a medical expense. That will preclude them from claiming the disability tax credit.

Apart from these federal credits and deductions, various provinces may have additional credits to reduce the financial stress. In Ontario, for example, Bill and Amy could apply for the healthy homes renovation tax credit. It pays 15% of home renovations (up to $10,000) aimed at making the homes of seniors (and their families if they live with them) safer and more accessible. Seniors and their family members at all income levels are eligible.

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