Do you act as a caregiver for a family member who either cannot live independently or who requires assistance in order to continue to live on their own?
Caregiving is a demanding and often stressful role. One of those demands is almost always financial. This can be financial support, disability-related costs incurred for the dependent relative or reduced income because of the need to re-allocate time from paid employment to unpaid caregiving.
The Canadian tax system recognizes the financial costs which are borne by caregivers and has, and provides an opportunity to claim tax credits which seek to mitigate those financial costs. There are multiple credits that can be a confusing when filing your tax return once a year. For this reason, the federal government has announced, as part of the 2017 federal Budget, that the current system of multiple caregiver credits is being eliminated, effective as of the 2017 tax year, with those multiple credits replaced by a single consolidated Canada Caregiver Credit.
The basic rule for the new credit is that it will be claimable by individual Canadians who provide care for infirm dependants who are parents/grandparents, brothers/sisters, aunts/uncles, nieces/nephews, or adult children of the taxpayer making the claim, or that taxpayer’s spouse or common law partner. The credit amount claimable for infirm dependants who fall into any of those categories is $6,883 per year.
A smaller credit amount will be claimable by individual Canadians who provide care for:
- an infirm dependant spouse or common law partner for whom the caregiver has claimed the spousal/common-law partner amount;
- an infirm dependant for whom the caregiver has claimed the eligible dependent credit; and
- an infirm child who is under the age of 18 at the end of the tax year.
The Canada Caregiver Credit amount for individuals who fall into any of these categories is $2,150 per year.
As is the case under current rules, the credit will be reduced dollar-for-dollar where the dependant’s net income exceeds a prescribed amount. For 2017, that prescribed income amount is $16,163, which represents a significant increase in some cases from the prescribed income limit set under current rules.
In all cases, regardless of the family relationship, the new Canada Caregiver Credit can be claimed only in respect of an individual who is infirm. Under pre-budget rules, adult children who provided in-home care for parents or grandparents who were over the age of 65 could claim a caregiver credit with respect to those relatives. Beginning with the 2017 tax year, however, no credit will be claimable in respect of non-infirm senior relatives who are dependent upon their adult children or grandchildren.
While it is necessary, in order to claim the new credit, that the dependant be infirm, there is no requirement that the infirm individual actually reside with the person making the Canada Caregiver Credit claim. As long as the infirm individual is dependent on the caregiver (and assuming that the other relationship and income criteria outlined above are met) that caregiver can claim the Canada Caregiver Credit.
While only one Canada Caregiver Credit can be claimed in respect of a single infirm dependant, that credit can be shared among multiple caregivers who support the same dependant. So, for instance, a married couple on whom an infirm parent is dependent could divide the credit between them, in whatever proportion they wish.
It should be emphasized that the changes announced in the Budget will have no effect on tax returns for the 2016 taxation year which are now being filed. The Budget measures affecting caregiver tax credits took effect as of January 1, 2017 and will be reflected for the first time on the 2017 tax return which will be filed a year from now.
That said, those taxpayers who are affected (for better or for worse) by the changes may want to take a look at how their tax situation for 2017 has changed as a result. For instance, an individual who provided in-home care to a non-infirm parent or grandparent and who claimed a caregiver tax credit in respect of that parent or grandparent should realize that no such claim will be available for the 2017 tax year. And, for each such claim not made, the individual’s federal tax payable for 2017 will increase by about $700.
Conversely, taxpayers who have not been able to claim a caregiver tax credit because the income of an infirm adult family member who was dependent on them was too high should reexamine their eligibility under the new rules. The dependant income threshold for full eligibility for the (former) infirm dependent credit was $6,902. The dependant income threshold for full eligibility for the new Canada Caregiver Credit is (for 2017) $16,163. Consequently, in many cases, claims for a caregiver tax credit may become available for the first time. In addition, it will be possible for dependants to receive higher income amounts (for instance, by making higher withdrawals from an RRSP or RRIF), without eroding their caregiver’s ability to claim the new Canada Caregiver Credit.
More information on the changes creating the new Canada Caregiver Credit can be found in the 2017-18 federal Budget papers, available on the Finance Canada website at www.budget.gc.ca/2017/docs/tm-mf/si-rs-en.html#_Toc476839165.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.