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Double trouble?

Couple fears illness, no pension could wreak havoc on retirement

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In the first of a two-part Money Makeover, experts on disability tax programs weigh in on this couple's options.

Next week: Building their retirement plan

Thomas faces a double-barrelled financial quandary that likely quite a few middle-aged people encounter as they reach their fifth decade.

He and his wife, Jane, are self-employed and they worry about how they'll manage when they retire.

"I'm not even sure we can retire," says Thomas, 49.

Complicating matters, he has a degenerative illness that doesn't prevent him from doing his job, but he finds doing the simple tasks such as getting out of bed, dressing himself and even walking increasingly difficult.

"Do I need help getting dressed in the morning? Ninety-nine per cent of the time, no," he says.

But he says he expects the day will come when he can no longer do his job, and with only about $14,000 in his RRSP, he is anxious about retirement.

Recently, Thomas looked into whether he qualifies for any disability tax credits, grants or programs, but a firm specializing in disability tax credits told him he didn't qualify.

"Their questions were 'Can you walk one city block without a cane or a walker?' which I can, but it probably takes me longer than a normal person," he says. "They said, 'Sorry, you don't qualify under the guidelines.' "

Still, he says the discussion with the firm was only a short phone conversation and he wonders if he wasn't brushed off a little prematurely.

"I know people who are collecting disability benefits who are really no more disabled than myself."

Thomas says he wants advice, and he and his wife also want a plan of attack to deal with the inevitable: living on a reduced income in retirement.

In Part 1 of this two-part Money Makeover, a Winnipeg firm often recommended by the Society of Manitobans with Disabilities provides Thomas with advice on what tax programs might apply to his situation.

Susana Scott and Coral Hetherington, Canada Pension Plan and disability tax credit advocates at Brematson and Associates, work exclusively with disabled people applying for government tax credits and benefits.

The first step, and the key to determining whether Thomas qualifies for most benefits, is to apply for the disability tax credit.

"The credit is retroactive a maximum of 10 years," Scott says. "If approved, the (Canada Revenue Agency) will reassess his taxes going back to the year that the doctor has certified his impairment met the criteria, limited to that 10-year rule."

The credit can be substantial, resulting in a tax refund of about $1,800 to $2,000 a yea, and if his past tax filings are reassessed, he could receive more than $20,000, including interest, from the CRA for the last 10 years if his doctor determines he qualifies for the credit that far back.

But it all hinges on his physician filling out a T2201 tax form, and in many cases an additional clarification questionnaire sent to the doctor after the initial application.

For the doctor to determine whether Thomas qualifies, he would have to be unable to carry out one of the functions of daily living, identified by the CRA, or take an inordinate amount of time to perform one of them, Scott says.

These functions include walking, dressing or preparing meals, but work-related activities are not part of the criteria.

"The Canada Revenue Agency does not define 'inordinate,' " Hetherington says. "The only basis for that in the legislation is the doctor is instructed to assess the patient relative to someone of a similar chronological age who doesn't have the marked restriction."

In Thomas's case, he might qualify because he's indicated it does take him longer to do some of these functions than a healthy individual of his age group.

"In other words, compared to a person of the same age, walking a city block, as an example: Can Thomas keep pace, or does it take him much longer to walk the same distance as a person the same age as him?" she says. "The doctor is not supposed to compare him to a 20-year-old or a 90-year-old; he's compared to a 49-year-old without the impairment."

If his family doctor or specialist agrees he has difficulty with one of these daily functions and signs the forms, Thomas will qualify for the tax credit.

That means he can also apply for a Registered Disability Savings Plan (RDSP), in which he can invest after-tax money that can then grow tax-sheltered. At this stage, however, a TFSA (tax-free savings account) would likely be equally as useful because he likely no longer qualifies for the Canada Disability Savings Grant.

If he were to qualify for the RDSP, for every dollar of the first $500 he contributes to the plan each year, he would receive $3 in grant money. On the next $1,000 of annual contributions, he would receive $2 in grant money for every dollar he contributes. The maximum grant is $3,500 a year, to a lifetime maximum of $70,000. But for families with incomes over $81,941, the grant matches only $1 for every dollar contributed to the plan, to a maximum of $1,000 annually.

The problem for Thomas is that eligibility for the grants stops after age 49.

Though he might qualify for this year and possibly retroactively to 2008 when the program began, it's likely a longs hot because he has to first qualify for the disability tax credit, and that can take time, Hetherington says.

Looking forward, Thomas might find in the next few years he is unable to work. At that point, he might be eligible for the disability benefit under the Canada Pension Plan (CPP).

"The criteria for CPP disability is that he must be under the age of 65, stopped working because of his medical condition and have made valid contributions to the Canada Pension Plan," Scott says. "His disability must be severe and prolonged and must prevent him from being able to work at any job on a regular basis."

So though he might not be able to do his current job, if it's deemed he can work a desk job, he doesn't qualify. The plan does allow for recipients to retrain so they can work, but if he doesn't qualify in the first place, it doesn't help him, Hetherington says.

Although Employment Insurance programs help individuals retrain while receiving the benefits, as a self-employed worker, Thomas hasn't paid into the plan and, once again, doesn't qualify.

"It's a catch-2," Hetherington says. "There's a big hole for self-employed people."

Although his situation is discouraging, Thomas shouldn't give up hope. He should at least apply for the disability tax credit because his physician may find he does meet the disability requirement.

"The weight of the decision is on the doctor," Hetherington says. "If the doctor does nothing, then there's nothing anyone can do for you."

Thomas's and Jane's finances


Thomas: $72,471 annual business income ($3,900 monthly net)

Jane: $35,000 annual business income ($2,000 monthly net)


Monthly: $2,185.76


Mortgage: $100,000 owing at 2.5 per cent variable, $358 bi-weekly payments on home assessed at $300,000


Thomas RRSP: $14,000 in mutual funds

Jane RRSP: $103,000 in mutual funds

Home equity: $200,000

TFSA: $3,500 in savings

Cottage lot: $35,000

Republished from the Winnipeg Free Press print edition October 15, 2011 B13

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