Canada Revenue Agency (CRA) recognizes that in certain circumstances, a person may financially and otherwise, support another person. To this end, there are several non-refundable tax credits available.
Before describing these support credits, it’s important to define a non-refundable tax credit. This type of credit has its effective credit amount limited to the amount needed to reduce a person’s tax liability to zero. If any amount of the tax credit is “left over”, that amount is not refunded to the person. It simply evaporates.
The “spousal credit” is likely the best known of these support tax credits. When one spouse is not earning any income, their standard “personal credit” amount – the deduction that all tax filers are eligible for – is not needed and can be transferred to the spouse earning income.
This is an $11,000 tax credit for 2018 tax prep.
However, the amount available for transfer is reduced by any earnings made by the lower income spouse so it doesn’t take much to reduce this $11,000 tax credit to zero available for transfer to the higher income spouse.
As is sometimes the case when there is a spousal credit, the dependant spouse has a mental or physical infirmity. In these cases, there is a $2,000 top-up to the spousal credit. A Disability Tax Credit (DTC) certificate does not necessarily have to be approved by CRA for this top-up to apply. However CRA may request proof of the medical issue from a doctor.
An extension to the spousal credit is the “eligible dependant credit”. For years it was referred to as the “equivalent to spouse credit”.
This support credit is available to a person who does not have a spouse but supports another family member, much like in the same way one spouse may support the other spouse, thus the original term that described this credit – equivalent to spouse.
The dependant must live with the person making the claim. Typically this claim is made by a single parent with a child under the age of 18. However this credit also includes the support of an infirm adult child, parent, grandparent or other such family member. Again a DTC is typically not necessary. A doctor’s note should suffice if requested by CRA.
In 2017 a new support credit was introduced called the “Canada caregiver credit” that in effect combined and simplified three existing convoluted medical credits. However, this new credit no longer permits a claim by a person who is supporting a healthy parent or grandparent over 65.
If a relative who is 18 or older is dependent on a person because of a mental or physical infirmity, that person can claim a $7000 credit. The amount of the credit is reduced as the earnings of the infirm relative increases above $16,000.
The infirm relative does not have to live with the person claiming the credit but if this is the case, CRA may request proof of the dependency.
Finally, in those situations when several of these support credits apply, CRA allows a multiple credit claim, however the spousal and eligible dependant credits must be claimed before the Canada caregiver credit can be claimed.
Ron Clarke has his MBA and is a business owner in Trail, providing accounting and tax services. Email him at ron.clarke@JBSbiz.ca. To read previous Tax Tips & Pits columns visit www.JBSbiz.net.