Tax credits for taxing times

Don’t let the 12-page and eight and a half foot long Disability Tax Credit application form – T2201 – deter you from getting what is rightfully yours. And while you’re at it, let your advisor help you use lucrative tax credits to offset medical costs.

The time to understand tax consequences of serious illness is when you’re healthy, said Alan Rowell, president and tax specialist of The Accounting Place, a taxation, wealth management and accounting firm in Stoney Creek, ON.

“Wealth or money means nothing when we put it against health and disability” said Rowell at the Distinguished Advisor Conference 2010 in Orlando, Florida. “I can safely say that there’s no one who would not hesitate to spend everything that they have and go into debt to help their family.”

Medical expenses and the impact growing life expectancy can have on them makes it imperative that advisors understand the medical implications on the tax returns.

Disability Tax Credit and attendant care expenses, although well-known, remain highly underutilized. “Disability Tax Credit is worth approximately $1,500 cash in the client’s pocket,” said Rowell who specializes in working with financial planners and provides accounting, taxation and business consulting services. “By simply filing out an application you can reduce your client’s tax bill by $1,500, give or take, each year while the disability lasts.”

One of the biggest obstacles, he said, was the state of denial in which many potential claimants refuse to believe they are eligible for the Disability Tax Credit. The stigmatic terminology of disability makes people resistant to using an otherwise well-known tax credit. The other reason, he said, is the application form itself. “You hand an eight and a half foot long application form to a 72-year-old (client) who doesn’t consider himself disabled; it is no wonder it never gets done.”

Disability Tax Credit requires filling out the entire 12-page application form. To qualify for the credit, the disability needs to be severe and prolonged – 12 months or longer – and it needs to be certified by a qualified practitioner. An advisor who helps clients through this process become “a hero”, said Rowell.

The definition of disability as laid out by the CRA doesn’t make things any easier. Rowell informed that in 2005 the CRA changed the condition for qualification from “markedly restricted” to “significantly restricted.”

The claim form is designed in a way as to suggest the claimant may not qualify, said Rowell. “The self test (section of the form) has some dangers, because the questions kind of reinforce the fact that may be we’re not disabled.”

At the beginning of his presentation, Rowell promised to have a good go at keeping things cheerful. Given the gravity about the subject, it would be a tough promise to keep, if it wasn’t for the second question on the self assessment questionnaire. It asks: “Are you blind?” “Now how the blind person is reading that application, I’m not really sure, but that’s one of the things that’s on it.”

He then took a swipe at the question that asks applicants if the effects of their impairment markedly restrict such daily activities as speaking hearing, dressing, walking, etc. “(That would) describe every teenager between the ages of 14 and 19. There’s no question that they are disabled. They can’t hear you, they can’t see, they can’t seem to keep their pants above their waist, which affects their walking.”

Turning serious again, he said questions like these stop people from going any further. He urged applicants not to let this discourage them.

Medical expenses are transferable, Disability Tax Credits included, among different family members and people could take advantage of this provision. “There are situations where it makes sense to transfer these (credits) to a supporting person,” said Rowell. “If you have an elderly parent who happens to be living with you, not making a lot of money, it makes sense to transfers some of these credits over.”

Children and dependents under age 18 can take advantage of the many tax credits created for them. They qualify for an increased Disability Tax Credit. “The regular $7,200 disability credit for them has now been increased to $11,394 against the income they don’t have, which is transferred to a supporting person,” said Rowell. This is received in addition to the child tax benefit.

Lack of awareness remains a big issue and deprives many people of a rightful claim. This includes parents of many special needs children who qualify for the Disability Tax Credit. He said it is imperative for advisors to ask their clients if the have children who were born with a disability. “There are massive amounts of deductions that are available, which can be spread around spouses and other family members.”

“Attendant care expenses, caregiver expenses, (and) infirm expenses” are some of the other expenses that are considered medical expenses and are eligible for returns under the Disability Tax Credit.”

In addition to raising awareness of the credit Rowell also dispel some of the common myths about the Disability Tax Credit. “Advisors need to instruct their clients that it’s not the doctor who decides if a client qualifies for the Disability Tax Credit,” he said. “The doctor certifies the report based on his records, the CRA decides if that applies or not.”

Disability tax credit is not a pension or insurance, it’s a tax credit that requires tracking related expenses. “Somewhere along the line all our clients are going to run into sever illness that’s going to strike their family,” said Rowell. “You can help your clients, (and) yourself, just by being aware of the different things that may or may not be available to you and enquire about them.”