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Financing Elder Care

Elder care can be an expensive undertaking and you should plan for it financially in order to avoid unnecessary tax burdens.

Assess the annual income of the person you will be caring for, including pensions and Social Insurance benefits. Subtract this income from $40,000 to find out approximately how much of annual elder care costs will need to be met from other sources. Then add up the person's investments and savings. Divide this number by the annual elder care costs that must be met from other sources to get a rough estimate of how many years of care this money will provide.

Gifts

You are allowed to give someone up to $13,000 a year without having to file a gift tax return. If you are married, you and your spouse together can give a $26,000 gift. Medical expenses you pay on someone's behalf do not count as a gift, however, and you can give the full amount in addition to paying for those medical expenses. You should check with an accountant or financial advisor for specific requirements.

Loans

If you loan money to the person you are caring for, that money is not taxable to them. But for the loan to be valid, it must be payable with interest, if the loan amount is greater than $10,000. The interest rate for family loans is specified by the CRA.

Tax Deductions

You may be able to claim the caregiver tax credit if you (either alone or with another person) served as a caregiver and maintained a dwelling where you and one or more of your or your spouse's or common-law partner's parents or grandparents aged over 65 lived according the CRA. You may also be eligible to claim tax deductions on the family members medical expenses that you have paid. For more information about tax credits available to you for paying your parents or grandparents medical expenses, visit the CRA’s Tax and Benefit Information For Seniors.

Reverse Annuity Mortgage

If an elderly person has a home with no (or a low) mortgage, he or she may borrow against the home through a reverse annuity mortgage. The lender pays the homeowner a monthly payment based on the value of the home. These payments reduce the equity of the home. The bank is then repaid, with interest, when the home is sold.

Old Age Security

The Old Age Security program is the cornerstone of Canada's retirement-income system. It is designed to supplement other earnings of Canadian seniors with a modest pension. Benefits include the basic the basic OAS pension, the Guaranteed Income Supplement (GIS) and the Allowance. The OAS program is financed from Government of Canada general tax revenues.

How It Works
The basic OAS pension isn't based on income or an individual's employment history. It's a taxable, fully indexed benefit that's adjusted quarterly to keep pace with inflation. Payments are made on a monthly basis.

When You Are Eligible
Canadian seniors can start collecting OAS at age 65 if they have lived in Canada for at least 10 years. Low-income seniors may be eligible for other benefits as early as age 60. You have to apply for OAS -- it is not automatic.

Benefits
The amount of your pension is determined by how long you've lived in Canada. If you've lived here, after reaching age 18, for periods that total at least 40 years, you may qualify for a full Old Age Security pension. If you haven't lived here for 40 years after age 18, you might still qualify for a full pension, provided you were 25 or older on July 1, 1977, and lived in Canada on that date; had lived in Canada (after reaching age 18) before that date; or had a valid immigration visa on that date. The patterns of your various absences from Canada are also factored in to whether you'll be approved for the full pension.

Guaranteed Income Supplement (GIS)
Residents of Canada who receive a basic, full or partial Old Age Security pension, and who have little or no income, are qualified for the GIS benefit. Recipients must re-apply annually for the GIS, and the amount of monthly payments is determined by a person's marital status and income.

Allowance And Allowance For The Survivor The Allowance, which also includes an allowance for persons whose spouse or common-law partner has died, are monthly benefits paid to the spouse or common-law partner of an OAS pensioner, or to a survivor. As of December 2004, to qualify, an applicant must be between the ages of 60 and 64 and must have lived in Canada for at least 10 years after turning 18. An applicant must also have been a Canadian citizen or a legal resident of Canada on the day preceding the application's approval. To qualify, the combined yearly income of the couple, or the annual income of the survivor, cannot exceed certain limits. For updates on qualifying for this allowance, visit the Human Resources and Skills Development Canada website.

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