9 December 2010 External T.I. 2010-0384881E5 - Eligibility for Non-Refundable Tax Credits

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Whether the taxpayers' daughter, who is age 18 or older and physically or mentally impaired, is a "dependant" for the purposes of the Act. (2) Whether the taxpayers are eligible for certain non-refundable tax credits in respect of their daughter.

Position: (1) Question of fact, but likely yes. (2) Certain non-refundable tax credits would be available, but each amount may be reduced by the daughter's income.

Reasons: Relevant provisions of the Act.

XXXXXXXXXX
									2010-038488
									T. Posadovsky, CMA
	 	 

December 9, 2010

Dear XXXXXXXXXX :

Re: Eligibility of a Dependant who is 18 or Older and Transfer of the Disability Tax Credit

We are writing in response to your letter dated August 27, 2010 concerning your clients' eligibility for certain non-refundable tax credits. We apologize for the delay in responding.

You explained that your clients have a daughter with Down Syndrome, a congenital heart condition and other special needs such that she cannot live independently. She requires constant supervision and assistance with day-to-day activities, such as dressing, bathing and preparing meals. You ask if the taxpayers' daughter qualifies as a dependant, even though she is 18 years of age or older, and whether the parents are entitled to any non-refundable tax credits.

According to your letter, the daughter received $XXXXXXXXXX and $XXXXXXXXXX in employment income for 2008 and 2009, respectively. She also received social assistance of $XXXXXXXXXX in 2008 and $XXXXXXXXXX in 2009 that was required to be included in computing net income under paragraph 56(1)(u) of the Income Tax Act (the "Act"), with an equivalent deduction provided under paragraph 110(1)(f) of the Act in computing taxable income. As the daughter's non-refundable tax credits exceed her taxable income, you ask whether the disability amount can be transferred to one or both of the parents.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Enquiries relating to specific taxpayers in a factual situation should be submitted along with all relevant facts and documentation to your local tax services office for their views in this regard.
However, we are prepared to offer the following general comments that may be of assistance.

Our Comments

A "dependant" is defined in subsection 118(6) of the Act and includes a child who "at any time in the year is dependent on the individual for support..." It is a question of fact in each case to determine whether or not the actions or contributions of a particular individual are of such a nature and degree that they could be said to constitute "support" of another person. Although consideration should be given to the availability and quantum of support provided, a person is generally considered to be dependent on an individual if the individual has actually supplied necessary maintenance, or the basic necessities of life (food, shelter and clothing) to the person on a regular and consistent basis. Note that where the person was in receipt of social assistance or any other type of financial or non-financial support, the individual must be able to show that the other assistance was insufficient to fully meet the person's basic needs and that the person had to rely on the additional support provided by the individual. Based on the information you provided, it is likely that the daughter is dependent on her parents for support, notwithstanding her receipt of social assistance.

In respect of personal tax credits and in consideration of the above, one or both parents may qualify for the amount for infirm dependants age 18 or older under paragraph 118(1)(d) of the Act. This non-refundable tax credit, claimed on line 306 of Schedule 1 of the T1 General 2009 - Income Tax and Benefit Return, can be claimed in respect of a dependent child if that child had an impairment in physical or mental functions, was resident in Canada at any time in the year and was born in 1991 or earlier. However, as indicated on the chart for line 306 on the federal worksheet, the credit would be nil in your situation because an individual can claim an amount only if the dependant's net income (line 236 of his or her return, or the amount that it would be if he or she filed a return) is less than $9,906 in 2008 and $10,154 in 2009.

Where an amount on line 306 cannot be claimed, one parent may claim (or both may share) the caregiver credit under paragraph 118(1)(c.1) of the Act. This non-refundable tax credit, claimed on line 315 of the T1 return, is available, for each dependant, to an individual who, at any time either alone or with another person maintained a dwelling where the individual and one or more of his or her dependants lived. Your clients meet the conditions, as they have a child who was resident in Canada, 18 years of age or older at the time she lived with them and was dependent on your clients due to mental or physical impairment. Note that the credit determined by the chart for line 315 on the federal worksheet is reduced by the dependant's net income for the year (line 236 of his or her return, or the amount that it would be if he or she filed a return).

In reply to your question concerning the transfer of the daughter's unused disability amount, one parent may be able to claim (or both may share) all or part of their daughter's disability amount (determined on line 316 of her return, or the amount that it would be if she filed a return) if she was resident in Canada at any time in the year and was dependent on the individual for all or some of the basic necessities of life (food, shelter, or clothing) pursuant to subsection 118.3(2) of the Act. The amount available is determined by completing the chart for line 318 on the federal worksheet and may be reduced by the dependant's taxable income for the year. Note that if this is a new application for the disability amount, the taxpayer will have to submit a completed and certified Form T2201 Disability Tax Credit Certificate with his or her return. The CRA will review the claim before assessing the return to determine if the dependant otherwise qualifies. If a Form T2201 Disability Tax Credit Certificate has been previously submitted in respect of the dependant, the taxpayer must note on his or her return the dependant's name, relationship and social insurance number.

More information on these non-refundable tax credits and other related issues are available in the General Income Tax and Benefit Guide as well as guide RC4064, Medical and Disability-Related Information, both of which are available on our web-site at www.cra-arc.gc.ca. We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett
Manager
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch