Many adult children in Canada are currently caring for elderly parents. While it can be rewarding, it isn’t always easy. Thankfully there may be ways to reduce some of the stress, particularly from a financial and tax standpoint. Kim Parlee speaks with Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, to uncover some tax strategies you won’t want to miss.
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- The most common form of caregiving reported in Canada is caring for parents, according to Statistics Canada. For adult children who have stepped in to take care of their elderly parents, it can be a lot to take on. Thankfully, there are a few ways to help ease some of the stress, some of the financial stress particularly from a tax standpoint. Nicole Ewing is Director of Tax and Estate Planning at TD Wealth, joins me to discuss some tax considerations for caregivers of aging parents. Nicole, who is one of our, again, favorite guests.
Nicole, great to see you. Let's start with just maybe a list, if you will, all the things that if you are a caregiver for your parents, what are some of the credits, deductions, things that might be available to people?
I won't say that it's an exhaustive list because that would really depend on the individual circumstances of you and your family. But certainly you want to have on your radar the Canada caregiver credit. We want to be thinking about whether we can claim the individual as an eligible dependent. We have medical expenses we may be able to use. The rollover of some of the unused disability tax credit of the individual. We have the home accessibility tax credit.
So there are a number of things that we should really have on our radar. Some of them not as well used as they should be.
- All right, let's dig in. The first one is the Canada caregiver credit. What is it?
- Yes, so this is if your parent lived in Canada for at least part of the year and they were dependent upon you for support. So when I say dependent, I mean that they don't have sufficient money to be able to provide for themselves and you are covering the costs of some of the necessities of life. So their support-- this is ongoing regular support of either food, clothing, shelter. So those basic necessities.
If you do that for them, you are able to potentially claim this credit, which can be quite significant. It can go up to about $8,000 depending on your parents' income and your personal circumstances. But if your parent's income is below, we'll say $27,000ish is the threshold, then this is a credit that could potentially be available for you for providing that support to them.
- Second one you talked about was claiming medical expenses. How do caregivers claim medical expenses of their aging parents?
- Of course, we know that we can claim our medical expenses for ourselves. But if we are funding again those expenses for our parents because they are dependent on us and can't come up with those funds themselves, then we can claim their medical expenses on our tax return. Now, we do need to use-- there's a 3% rule that it's only expenses over 3% of the income. But we're able to use our parents' income for that test, which is probably a little bit lower than ours. So it's a threshold that might be a bit easier to reach.
But if we are paying for these expenses out of hand, then we have the ability to claim them. What's interesting about the medical expense credit, it's on a 12-month basis. So not necessarily the calendar year, but we can look back 12 months and claim for that 12-month period the medical expenses that we paid for. So these might be some expenses from a previous year that we're able to claim in the current year, which could be a nice little bit of extra reimbursement.
- Yeah, and everything counts. The disability tax credit-- and I understand that this is something that if they don't need the credit to eliminate some of the taxes they need to pay-- that's something that could be passed on to the caregiver?
- Exactly. That's, again, if they are dependent on you and they are receiving this disability tax credit, which unfortunately a lot of people don't apply for. So I would encourage those who think they might qualify for this to really look into it. I know that there's time and effort involved in that. But this is a disability tax credit that can reduce your income, can reduce your caregiver's income.
Of course, we have to use it all. We need to reduce the individual's income tax owing to zero. But as long as there is excess funds, that can be transferred over and you're not rolling over this amount. So you want to use it, if at all possible, by those who are providing support for you.
- All right, let's talk about the home. You mentioned, I know, a couple of things earlier on. So the first one is the home accessibility tax credit.
- Right. So this is a credit that is essentially 15% of up to $20,000 in expenses. So about $3,000 credit that to the extent you made modifications to your home of a permanent nature, that allowed the individual-- so either somebody over the age of 65 or who qualifies for the disability tax credit-- if they are in that home and you are making it more accessible to them, making it more safe either for mobility throughout the property or to access the property, those expenses are going to be able to be claimed on this accessibility tax credit.
What's interesting here is that those same expenses may qualify for the medical expense credit that we just spoke about as well. So it's not an either, or. It's actually both that the same expense can be claimed on the home accessibility tax credit and on the medical expenses.
- Interesting. What about-- this is something new-- the multi-generational home renovation tax credit?
- So this one is new. This is for 2023, onward. And this is 15% of expenses up to $50,000. So here we're looking at about $7,500 that might be available. And this is a refundable credit, which is different than the others, which are non-refundable, which means if you don't owe the tax, once you get down to zero, that's it. But the refundable credit allows that money to come back to you.
And this is where we are using our funds to create a secondary dwelling in our home, for, again, an individual over 65 or who has a disability. And as long as it has a separate entrance, a separate kitchen, bathroom, sleeping area, this is considered a secondary dwelling. We're really trying to encourage those options for people that want to stay in their own homes or stay with their children. And so any expenses that would be of, again, a permanent nature to create that secondary dwelling would be able to be claimed.
But only if it's January of this year. So January 1, 2023 is the first time the expenses will be able to be accessed.
- I'm sure a lot of contractors ears just perked up on that particular one right there. So in terms of when this will be done, listen, we've only got about a minute left, Nicole. But I think the one thing that stood out-- I mean, there's some great tips in here too-- is that these just aren't being accessed by people in the way that they should. And this is something that I know you see this when you're dealing with clients, that this is something that people should be paying more attention to.
- I hope that they can. And I fully appreciate the limitations on people who are in this situation, who are providing that caregiving, and just might not have the either time bandwidth or mental bandwidth to even think about this sort of thing. But these are there for a reason. The government supports that are available to you, there's additional provincial supports that would also be available. And those really can add up and make a difference in the type of care that you're able to provide for your loved one or the type of relief that you're able to give yourself by hiring somebody else to provide some of that care.
So working with professionals, working with your financial advisor, working with your accountant on this really is worth the time and energy to do it. And some of these credits and deductions are income-based. So when we look at the Canada caregiver credit, it is only going to be available if your parent's income is below a certain threshold. So we might want to be doing some cash flow planning, some financial planning, where we're looking at the income that we're drawing out to them, we might be able to do some adjustments to ensure that they are getting the best full benefit that they're able to get from these deductions and credits.
[MUSIC PLAYING]
- The most common form of caregiving reported in Canada is caring for parents, according to Statistics Canada. For adult children who have stepped in to take care of their elderly parents, it can be a lot to take on. Thankfully, there are a few ways to help ease some of the stress, some of the financial stress particularly from a tax standpoint. Nicole Ewing is Director of Tax and Estate Planning at TD Wealth, joins me to discuss some tax considerations for caregivers of aging parents. Nicole, who is one of our, again, favorite guests.
Nicole, great to see you. Let's start with just maybe a list, if you will, all the things that if you are a caregiver for your parents, what are some of the credits, deductions, things that might be available to people?
I won't say that it's an exhaustive list because that would really depend on the individual circumstances of you and your family. But certainly you want to have on your radar the Canada caregiver credit. We want to be thinking about whether we can claim the individual as an eligible dependent. We have medical expenses we may be able to use. The rollover of some of the unused disability tax credit of the individual. We have the home accessibility tax credit.
So there are a number of things that we should really have on our radar. Some of them not as well used as they should be.
- All right, let's dig in. The first one is the Canada caregiver credit. What is it?
- Yes, so this is if your parent lived in Canada for at least part of the year and they were dependent upon you for support. So when I say dependent, I mean that they don't have sufficient money to be able to provide for themselves and you are covering the costs of some of the necessities of life. So their support-- this is ongoing regular support of either food, clothing, shelter. So those basic necessities.
If you do that for them, you are able to potentially claim this credit, which can be quite significant. It can go up to about $8,000 depending on your parents' income and your personal circumstances. But if your parent's income is below, we'll say $27,000ish is the threshold, then this is a credit that could potentially be available for you for providing that support to them.
- Second one you talked about was claiming medical expenses. How do caregivers claim medical expenses of their aging parents?
- Of course, we know that we can claim our medical expenses for ourselves. But if we are funding again those expenses for our parents because they are dependent on us and can't come up with those funds themselves, then we can claim their medical expenses on our tax return. Now, we do need to use-- there's a 3% rule that it's only expenses over 3% of the income. But we're able to use our parents' income for that test, which is probably a little bit lower than ours. So it's a threshold that might be a bit easier to reach.
But if we are paying for these expenses out of hand, then we have the ability to claim them. What's interesting about the medical expense credit, it's on a 12-month basis. So not necessarily the calendar year, but we can look back 12 months and claim for that 12-month period the medical expenses that we paid for. So these might be some expenses from a previous year that we're able to claim in the current year, which could be a nice little bit of extra reimbursement.
- Yeah, and everything counts. The disability tax credit-- and I understand that this is something that if they don't need the credit to eliminate some of the taxes they need to pay-- that's something that could be passed on to the caregiver?
- Exactly. That's, again, if they are dependent on you and they are receiving this disability tax credit, which unfortunately a lot of people don't apply for. So I would encourage those who think they might qualify for this to really look into it. I know that there's time and effort involved in that. But this is a disability tax credit that can reduce your income, can reduce your caregiver's income.
Of course, we have to use it all. We need to reduce the individual's income tax owing to zero. But as long as there is excess funds, that can be transferred over and you're not rolling over this amount. So you want to use it, if at all possible, by those who are providing support for you.
- All right, let's talk about the home. You mentioned, I know, a couple of things earlier on. So the first one is the home accessibility tax credit.
- Right. So this is a credit that is essentially 15% of up to $20,000 in expenses. So about $3,000 credit that to the extent you made modifications to your home of a permanent nature, that allowed the individual-- so either somebody over the age of 65 or who qualifies for the disability tax credit-- if they are in that home and you are making it more accessible to them, making it more safe either for mobility throughout the property or to access the property, those expenses are going to be able to be claimed on this accessibility tax credit.
What's interesting here is that those same expenses may qualify for the medical expense credit that we just spoke about as well. So it's not an either, or. It's actually both that the same expense can be claimed on the home accessibility tax credit and on the medical expenses.
- Interesting. What about-- this is something new-- the multi-generational home renovation tax credit?
- So this one is new. This is for 2023, onward. And this is 15% of expenses up to $50,000. So here we're looking at about $7,500 that might be available. And this is a refundable credit, which is different than the others, which are non-refundable, which means if you don't owe the tax, once you get down to zero, that's it. But the refundable credit allows that money to come back to you.
And this is where we are using our funds to create a secondary dwelling in our home, for, again, an individual over 65 or who has a disability. And as long as it has a separate entrance, a separate kitchen, bathroom, sleeping area, this is considered a secondary dwelling. We're really trying to encourage those options for people that want to stay in their own homes or stay with their children. And so any expenses that would be of, again, a permanent nature to create that secondary dwelling would be able to be claimed.
But only if it's January of this year. So January 1, 2023 is the first time the expenses will be able to be accessed.
- I'm sure a lot of contractors ears just perked up on that particular one right there. So in terms of when this will be done, listen, we've only got about a minute left, Nicole. But I think the one thing that stood out-- I mean, there's some great tips in here too-- is that these just aren't being accessed by people in the way that they should. And this is something that I know you see this when you're dealing with clients, that this is something that people should be paying more attention to.
- I hope that they can. And I fully appreciate the limitations on people who are in this situation, who are providing that caregiving, and just might not have the either time bandwidth or mental bandwidth to even think about this sort of thing. But these are there for a reason. The government supports that are available to you, there's additional provincial supports that would also be available. And those really can add up and make a difference in the type of care that you're able to provide for your loved one or the type of relief that you're able to give yourself by hiring somebody else to provide some of that care.
So working with professionals, working with your financial advisor, working with your accountant on this really is worth the time and energy to do it. And some of these credits and deductions are income-based. So when we look at the Canada caregiver credit, it is only going to be available if your parent's income is below a certain threshold. So we might want to be doing some cash flow planning, some financial planning, where we're looking at the income that we're drawing out to them, we might be able to do some adjustments to ensure that they are getting the best full benefit that they're able to get from these deductions and credits.
[MUSIC PLAYING]