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The Money Management Newsletter: Taxes and Estate Matters
Care decisions have tax consequences
It may be the last thing that you'll think of when your family members are ill. But the decisions you make about their care may well affect the TAXES YOU PAY

By Anne Chun, C.A.,CFP,
Money Management Newsletter, January 2006

The weather has started turning cold and I can feel the dampness in the air. As I started to prepare ABC Corporation's tax returns, Jane, a long-time client, called me on this dreary day and sounded drearier herself.

Her 85-year-old mother Doris had suffered a stroke and was in the hospital. She was getting physiotherapy but the doctor had reservations about her moving back to a condo where she lives by herself. Jane was contemplating either moving her mom in with her for awhile, or moving her mom into a retirement residence that offers medical care. She wanted my input.

I'm not a medical doctor and can only give her tax and financial-planning ideas. From the financial-planning perspective, Jane and her mom should find out the costs of the retirement residence. In most cases, besides the rental cost of the apartment, there may be other charges. As for moving in with Jane and her own family, the issues include whether there is enough space and whether any modifications are required. Another option, if Doris's physical condition will improve, is for someone stay with her in the condo.

For each of the three options, there is some federal tax relief available.

OPTION 1 - DORIS MOVES BACK TO HER OWN CONDO

If she hires someone to look after her full-time, she may be able to claim an Attendant Care Expense. Under proposed legislation, the Attendant Care Expense is to be replaced with a broader Disability Supports Deduction.
This deduction is available to those who are employed or carry on a business or attend an educational institution.
If Doris does not qualify for the deduction, the expenses can be claimed as a Medical Expense Tax Credit by Jane.
Doris may qualify to claim the Disability Tax Credit herself. Her doctor has to certify that her impairment is "severe and prolonged" and that she is "markedly restricted" in one of the stated basic activities of daily living (such as walking).
If Doris qualities for the Disability Tax Credit, she can claim expenses for part-time attendant care.

OPTION 2 - DORIS MOVES IN WITH JANE

Jane may be able to claim the Caregiver Tax Credit for providing home care to her mom. Doris's net income has to be less than a threshold amount ($16,705 for 2004).
Amounts paid by Jane to learn to care for her mom can be claimed as a Medical Expense Tax Credit.
If Doris qualifies for the Disability Tax Credit, but her income is too low to make use of it, this credit can be transferred to Jane.
Jane may also claim, up to a maximum of $5,000, payments to adapt a vehicle (as prescribed by a medical practitioner) to transport Doris and reasonable costs to alter or renovate her home.

OPTION 3 - DORIS MOVES INTO A RETIREMENT RESIDENCE

Part of the costs may be claimed as rent for the Ontario Property Tax Credit.
If she requires attendant care, this may be deducted as the Disability Supports Deduction or as a Medical Expense Tax Credit, but not both.
If Doris claims more than $10,000 of expenses for attendant care, no-one can claim the disability amount (Disability Tax Credit).

Anne Chun, C.A. CFP is the co-author of Planning your Financial Future. You can access other articles by her via her Fiscal Agents Advisor Profile.

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