One of the reasons the caregiver tax credit is missed is because it’s sometimes awkward for clients to ask a doctor for a signed statement, an expert says.Getty Images/iStockphoto
Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.
Come tax time, some clients overlook key credits that can vastly reduce their taxes owing.
In fact, a recent survey by IG Wealth Management showed only 10 per cent of Canadians feel very confident they have claimed all the applicable tax credits.
While tax-filing software may flag the credits, an advisor can better explain how tax credits work and if they truly do apply to a client’s specific circumstances.
“Our value is around communication and we need to make sure we’re working from a complete set of facts,” says Kevin Burkett, partner at Burkett & Co. Chartered Professional Accountants in Victoria.
“A client may not tell us something where we can make a tax claim, but it’s our responsibility to facilitate the necessary communication to uncover those things.”
Below are some tax credits that some tax professionals routinely see missed among clients.
1. Disability tax credit
Mr. Burkett starts conversations about the disability tax credit (DTC) with retired clients who have increasing needs for assisted care.
“I want to make sure that everybody who can qualify for a disability tax credit has one because it unlocks huge benefits in the scope of tax benefits,” he says.
Eligible clients will receive retroactive tax credits for up to a decade. Qualifying for the DTC also means the client may be able to apply for other tax savings programs such as the registered disability savings plan, Canada workers benefit and child disability benefit, Mr. Burkett adds.
He says when some clients and prospects hear the word “disability,” they strictly think of the conventional definition, but in reality, it could mean a mental illness or someone requiring significant care.
“In a number of those cases, they may be within the scope of a DTC,” Mr. Burkett says. “It’s intended to help people or their supporting family members reduce the amount of income taxes they pay. Depending on the cost of care, sometimes those amounts can be quite substantial, especially for folks in assisted living facilities.”
The client needs to work with a medical practitioner to apply for the DTC digitally.
2. Medical expenses
Medical expenses allow you to claim items as small as contact lenses and glasses and as large as ambulance service and breathing devices.
Mr. Burkett says many clients often overlook medical expenses because “they must exceed $2,479 or 3 per cent of their 2022 net income, whichever is lower, to generate a tax credit.”
“Clients will say, ‘I didn’t submit medical expenses with my tax information because I couldn’t meet those thresholds,’” Mr. Burkett says.
However, he notes that the 12-month period for which medical expenses can be claimed is flexible and can be adjusted to allow for periods to optimize for the highest credit possible. Mr. Burkett adds that this may create opportunities, for example, in which expensive dental work occurred over a one-year period that ended at some point in 2022 to benefit from medical expenses that wouldn’t otherwise exceed the threshold.
3. Home accessibility expenses
This credit is for a person who is 65 or older or is a disabled person who is renovating their house to make it more accessible. Eligible renovations are limited to $20,000 and should be geared at helping a qualifying individual to be mobile or function within a dwelling, Mr. Burkett says.
“The criteria of those renovations are larger than people expect,” he notes, citing specific examples such as an elevator installation, stair assists, adding a main floor bedroom or bars in the bathroom to avoid falling.
He mentions this credit to clients in this situation as it may “incentivize someone to undertake that type of improvement to accessibility or safety.”
4. Canada caregiver credit
This credit is claimed by a caregiver of a spouse, common-law partner or dependant who has a physical or mental impairment. Taxpayers may be able to claim $2,350 for the eligible dependant amount and a further $7,525 under the Canada caregiver amount, Mr. Burkett notes.
“These credit amounts have also been indexed to inflation,” he says.
To qualify, clients will need a signed statement from a medical professional or already approved for the DTC.
“One of the reasons this is a missed credit is it’s a bit of an awkward question [for clients] to ask their doctor,” he says.
5. Charitable donations and gifts
It’s well known that donations to registered charities can mean a substantial credit for clients. The first $200 donated will provide a 15 per cent federal tax credit with amounts beyond that increasing to a 33 per cent credit, depending on income, says Wilmot George, vice-president, tax, retirement and estate planning, at CI Global Asset Management in Toronto. Provincial credits also apply.
But what happens when a client forgets about donations they’ve made until a few years later?
Mr. George notes that some clients are unaware that there’s some flexibility on when you can claim those donations. Taxpayers are allowed to carry forward the donations and claim them within five years.
“Go back, double-check prior years and see if you missed receipts that can still be claimed,” he says. “The donation credits you receive reduce the cost of the gift.”
6. Tuition education amount and training credit
A post-secondary student can transfer up to $5,000 of their unused tuition amount to a parent, grandparent or to their spouse or common-law partner. Transferring the amount helps the relative lower their taxes owing.
Mr. Burkett says this credit can be overlooked if advisors aren’t overseeing the students’ tax returns as, usually, it’s the parents who are clients, not the kids.
“The student may do their own tax return and the advisor may miss that the student is generating those tuition credits because the credit receipt is issued in the student’s name,” he says.
7. Amount for an eligible dependant
This non-refundable tax credit is for single adults who have supported an eligible dependent whose net income for the year is less than the basic personal amount, generally $14,398 for 2022.
“You can claim this amount for one dependant if, at any time of the year, you didn’t have a partner and supported the dependant in a home you maintained,” Mr. George says.
He adds that the dependant isn’t always a child under 18 years old, but a parent, grandparent or a child over 18 who has a physical or mental impairment.
8. First-Time Home Buyer Tax Credit
Mr. George says this tax credit is designed to assist first-time homeowners with the purchase of a residence and related closing costs. A client can claim up to $10,000 for the purchase of a qualifying home.
“That actually translates to about $1,500 in tax savings if you claim the full $10,000,” he says.
This credit dovetails with those clients who are able to benefit from the Home Buyers’ Plan and the upcoming Tax-Free First Home Savings Account.
For more from Globe Advisor, visit our homepage.