10 Tips for 1990 Tax Returns
I want to mention some things to consider in filling out your income tax return. Many provisions are complicated – consult your own tax adviser for individual advice if you have a problem. Be careful on relying on telephone advice from Revenue Canada. It is difficult to advise on a problem over the phone.
1. File a return
Many taxpayers who receive non-taxable income, such as social assistance or worker’s compensation, do not file returns. This is usually a mistake, because in failing to file they give up their entitlement to refundable credits such as child, federal sales, G.S.T. and some provincial tax credits. Since these are refundable, people can get money back even if they pay no tax!
Almost every low-income Canadian at least 19 years old, or younger if married or a parent, can at least get the federal sales tax credit of $140 for 1990 and begin to get the GST credit in 1991. Get a social insurance number from your local Canada Employment Centre if you don’t have one, as this will be required on your return.
For payments like social assistance and workers’ compensation, you should receive a T5007 form to attach to your return. This money is not taxable and should not be reported as income. However, it has to be taken into account in calculating your tax credits and in determining whether someone can claim you as a dependent.
2. Consider filing the T1 general return
Many taxpayers receive the T1 special return, and this year there are even simpler versions – the T1 short and the T165 Plus. While these forms are convenient, there are disability related items (and some other things as well) that can only be claimed using the T1 General Return. These include attendant care, medical expenses and the equivalent-to-married amount. If you are eligible, get the T1 General from the post office or district taxation office.
3. Claim attendant care expenses at work
Subject to certain restrictions, attendant care expenses at work which you pay yourself can be claimed up to a maximum of $5,000 at Line 215 of your return. Obtain Form T929, “Attendant Care Expenses” to make this claim.
4. Consider claiming a disabled dependent
You can claim a legal spouse, child or other relatives as dependents at lines 303, 304 and 305 of your return. Detailed information can be found in Interpretation Bulletin IT-513, “Personal Tax Credits”. A child over 18 may be claimed as a dependent at Line 304 only if “physically or mentally infirm”. However, if the child receives social assistance or similar benefits, these are added to “net income” in the calculation of this claim, which often wipes it out. Other adult disabled dependants may be claimed at Line 305, but again social assistance income must be taken into account. If you are single, divorced, separated, widowed or living common-law and had a disabled dependent living with you in 1990, consider whether you can claim the “equivalent-to-married amount” at Line 305 using Schedule 6. The dependent’s social assistance income is taken into account for this claim too. The permitted income level, however, is higher than for other dependency claims.
5. Apply for the disability credit
Disabled taxpayers may apply for the disability credit at Line 316 of the return. Obtain form T2201 if you believe that you are eligible. There is a three part test of eligibility: The disability must be Severe, Prolonged (lasting more than 12 months) and leading to “marked” Restriction in performing activities of daily living. Bear in mind that if you become disabled in 1990, you can still apply for the 1990 tax year, so long as the disability is expected to last at least 12 months. If your physician does not certify that you meet these three tests, particularly the one involving “marked” restriction, there is no point in submitting the T2201. Revenue Canada has prepared a booklet for taxpayers called “How You Claim the Disability Credit” and a booklet for doctors entitled “How to Certify Disabilities for Income Tax Purposes”. The claim that you see at Line 316 of your tax return is $3,327, but like all nonrefundable tax credits, it is converted to a 17% credit, so the actual federal tax saving is about $566. However, there is an impact on provincial tax payable too, so the real value of the disability amount is likely to be $850-$950, depending on your province. It’s a non refundable credit, so you must have paid or owe tax in order to benefit.
6. Apply for the disability credit for a disabled dependent
If your spouse is disabled and does not need to use the disability amount him/herself (because they have no tax payable, for example), it can be transferred to you at Line 326 using Schedule 2. If your child or a relative is disabled, consider making the transfer claim at Line 318, but there are complicated rules. The income test for transfer of the disability amount uses “taxable income” not “net income” so social assistance, workers’ compensation and similar amounts are not taken into account. Another point is that at Line 318 the transfer is extended to the parents, parents-in-law, grandparents, and grandparents-in-law who live with you.
7. Consider whether disability-related items are claimable as medical expenses
At Line 330, you may claim “medical expenses”. This includes, beside health related items, many payments which you make related to your own or your dependent’s disability. Some examples are home renovations for accessibility, expenses for guide and hearing-ear dogs, payments to a full time attendant(s), fees to certain special programs and travelling expenses to obtain medical treatment. For details, obtain Interpretation Bulletin IT-519, “Medical Expense and Disability Tax Credits”. There are some “tricks” around medical expenses. Sometimes it is better not to claim your 1990 expenses, but to “save” them for 1991 by choosing a 12 month period different from the calendar year. This is because 3% of your net income (to a maximum of $1,542) is deducted from your medical expense claim. It is better to only have this deduction once. If you paid significant medical expenses for an adult child whom you could not claim as a dependant because his/her “net income” was slightly to high, you still may be able to make a medical expense claim using the so-called “notch provision” (see Line 330 of the General Tax Guide under “tax adjustment”).
8. Claim higher child care expenses for an “older” disabled child
Ordinarily, the maximum child care expenses claim (Line 214) is $4,000 for a child 6 and under, $2,000 for a child 7 to 14 and nothing for a child over 14. However if a disability credit certificate (T2201) is submitted for the child, the maximum claim if $4,000 regardless of age. If a child over 14 has a “mental or physical infirmity”, then a maximum claim of $2,000 can be made even if the child does not qualify for the disabled credit. Obtain the “Child Care Expenses Tax Guide” for more information.
9. Consider an extra child care expense claim if a parent is disabled
The usual rule is that a parent (or “supporting person”) with the lower net income must claim child care expenses. However, if one parent is disabled and unable to care for the children, then the higher income spouse may make the claim. See the “Child Care Expenses Tax Guide”.
10. You can still make claims back to the 1988 taxation year
If you have not made a claim, such as for the disability credit or for medical expenses, for previous years you can still go back as far as the 1988 taxation year (and possibly 1987), provided that your claim is in by December 31, 1991. Follow the instructions “changing your return after you mail it” under the heading “Now That You Have Completed Your Return” in the T1 General Tax Guide. In most cases, write to your District Taxation Office, give your social insurance number, the details of the changes, the years you are applying for and the supporting documentation. Do not file an entire new return for the years in question.
The forms and interpretation bulletins mentioned in this article are available from your District Taxation Office. The Advocacy Resource Centre for the Handicapped publishes further information in a booklet entitled “Answers to Your Tax Questions – 1990 “. For a free copy, please write to: Advocacy Resource Centre for the Handicapped, 40 Orchard View Blvd, Suite 255, Toronto, Ontario, M4R 1B9. ARCH cannot guarantee that individual inquiries will be answered in detail.