2015-0616861M4 Attendant Care, Disability Tax Credit, OAS

Principal Issues: General information on tax issues impacting taxes payable by seniors.

Position: See below.

Reasons: See below.

Author: Dubis, Robert
Section: 118.2(2)(d); 118.3(1); 180.2

February 26, 2016

XXXXXXXXXX

Dear XXXXXXXXXX:

Mr. Andrew Treusch, Commissioner of the Canada Revenue Agency (CRA), has asked me to reply to your correspondence seeking clarification of tax laws that affect disabled seniors. I appreciate your comments about this important issue. Please accept my apology for the delay in replying.

You are specifically concerned about seniors who pay for their own in-home and end‑of-life care. You indicate that your father, who resides in a residential facility, pays more income tax than when he lived independently, and you say the Income Tax Act does not provide any tangible recognition of the funds he uses to pay for his own care. I understand that you are seeking clarity about some of the specific tax issues that impact taxes payable by seniors.

The amount of income tax an individual pays depends on their income level and their eligibility for specific tax deductions or personal income tax credits. Generally, individuals with higher taxable income will pay more income tax.

You say your father’s primary sources of income are his registered pension plan (RPP) and registered retirement income fund (RRIF). While pension income and withdrawals from RRIFs are included in taxable income, the contributions your father made to the RPP and the registered retirement savings plan (RRSP) were deductible from his income at that time, which reduced his taxes payable for the respective tax years. Please note also that income a taxpayer earned in registered plans, including RRSPs and RRIFs, grows tax-free within the plans until the taxpayer withdraws it.

Since 1988, the personal income tax system has generally used non-refundable income tax credits rather than income tax deductions to offer assistance for personal expenses. There are several tax credits that assist disabled and senior individuals. The disability tax credit (DTC) is a non-refundable tax credit that helps persons with disabilities reduce the amount of income tax they have to pay. The purpose of the DTC is to ensure tax fairness by allowing some relief for disability costs incurred by individuals who have one or more severe and prolonged impairments in mental or physical functions. You can find more information about the DTC at www.cra.gc.ca/disability.

To assist individuals who have significant medical expenses, a non-refundable medical expense tax credit is available if the individuals’ eligible medical expenses are greater than the lesser of 3% of their net income or $2,208 (for the 2015 tax year). As you mention, the medical expense tax credit is available to individuals who have attendant care or nursing home costs. Individuals who have attendant care or nursing home costs and qualify for the DTC can claim the greater of:

*     the DTC plus a maximum of $10,000 in salary and wages for attendant care; and
*     the full amount paid for salary and wages for attendant care or for nursing home costs.

Old age security (OAS) payments are included in income, but they may be partially or fully clawed back when an individual’s income is more than the specified amount for net income. The specified amount for the 2015 tax year is a net income of $72,809. In many cases, Service Canada withholds at source an estimated OAS repayment. When taxpayers fill out their annual income tax and benefit return, the calculation of any social benefits repayment, including the OAS clawback, is based on their actual income for the tax year. Although taxpayers must include the OAS amount they receive in their income, they can deduct the OAS repayment amount at line 235, “Social benefits repayment,” of their return. The T4A(OAS) information slip confirms the amount of any repayment at source. The withholding and filing processes ensure that taxpayers do not pay tax on the OAS amount they repaid, whether it was withheld at source or payable at the time they filed their return.

The CRA is responsible for administering the tax system and enforcing tax policy and legislation, while the Department of Finance Canada is responsible for changing tax policy and legislation. Because most of your concerns relate to tax policy, I am sending a copy of our correspondence to the Department of Finance, for their consideration.

I trust the information I have provided is helpful.

Sincerely,

Geoff Trueman
Assistant Commissioner
Legislative Policy and Regulatory Affairs Branch

c.c.:  Department of Finance
         90 Elgin Street
         Ottawa ON  K1A 0G5

Robert Dubis (905) 721-5191
2015-061686

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