12/16/2014 05:25 EST | Updated 02/15/2015 05:59 EST

Caught in the Sandwich Generation? Get Some Tax Relief

Two Peas & Their Pod

If you are stuck in the middle and caring for an aging parent, there are some tax breaks to help with the additional expenses.

The term "Sandwich Generation" refers to adults in their 30s to 50s with children at home and responsibilities to care for aging parents. It first appeared in the Merriam-Webster dictionary in 2006, but as a phenomenon it's not new. In past generations, this sort of family arrangement was quite common.

According to Statistics Canada, almost 10 per cent of middle-aged adults identify themselves as part of the Sandwich Generation. What's different for the current generation -- the Squashed Generation, as I like to call it -- is that today most members are juggling full-time employment with the responsibilities of child and elder care; the stay-at-home caregiver has become increasingly rare.

As a tax professional and a "Squashee" -- I have a daughter in Grade 7 and an elderly father living in my home -- I've got a unique perspective on the tax implications of this juggling act. There are tax credits available to caregivers stuck in the middle. Maximizing their effect depends on three principles: knowing what's eligible, knowing what's transferable, and managing your tax burden as a family, not as individuals.

Caregiver Tax Credit

If you have a dependent family member 18 or older living with you, you qualify for the non-refundable caregiver tax credit of $2,040. To be considered dependent, family members must be 65 or older or have a physical or mental impairment. The spectrum of family members this applies to is quite large: kids, step-kids, uncles, aunts, parents, grandparents and in-laws. Your 30-year-old child who is a victim of a crushed job market doesn't qualify.

However, your eligibility for the credit depends on your dependent's income. The window is fairly small: when your dependent's income crosses the $15,472 threshold, the Canada Revenue Agency (CRA) starts clawing back the value of the caregiver credit. If your dependent is impaired, the caregiver amount is worth $6,588. Otherwise it is worth $4,530.

Medical and Attendant Care Expenses

Medical and attendant care expenses can add up quickly. It's important to plan who pays for what to maximize the tax benefit. These tax credits are non-refundable so it means you have to pay income tax before they provide any benefit. If you don't have taxable income, then you can't claim non-refundable credits. If you are caring for a parent with minimal income, it is probably best that you pay the medical expenses and claim them. In the case of dependents 18 or older your claim will be reduced by 3 per cent of their net income instead of your own net income.

If your dependent qualifies for the disability amount and you hire a nurse to help out a few hours a week, you can claim the attendant care expense. These are claimed as part of your medical expenses so, again, they are best paid by someone who can use the non-refundable credit.

It's surprising what can qualify as a medical expense. Adult diapers for incontinence, hearing aid batteries and canes all count, as long as they are prescribed by a doctor. Medical expenses can even extend to home renovations to accommodate your mom or dad's mobility issues: safety bars in the tub, wheelchair ramps, even paving a gravel driveway to make it easier to get in and out of the house.

Disability Credit and Attendant Care

As I said, attendant care expenses add up quickly--having a nurse come in to help out at $30 an hour becomes a substantial tax credit. But again, you need to figure out how to maximize your claim. If your dependent wants to claim the disability amount, you can only claim up to $10,000 in attendant care. If you spend more, you need to figure out if it is better to claim all your attendant care expenses or claim the $10,000 maximum and disability amount.

The disability amount is transferable if your dependent can't use all of it. Claim the combination that gives you the most tax savings. This is where working things out as a family can maximize your tax return.

If you are being squished in the Sandwich Generation, tax credits will help offset some of your additional expenses. It may be a small recognition for taking the responsibility of caring for your aging parent, but it is better than no credit at all. Again, remember the three principles: know what's eligible, know what's transferable and, most of all, manage your tax burden as a family, not a group of individuals.