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Tax obligations, debts continue for incapacitated individuals

As incapacitated individuals have the same tax filing requirements as all other taxpayers, substitute decision makers should be sure to stay on top of their record-keeping obligations, Toronto tax litigation lawyer David J. Rotfleisch says in a recent Caregiving Matters podcast.

“We all have to file our tax returns by April 30. And that means that the substitute decision maker has to make arrangements to collect all of the information” Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, says in the interview, part of the Power of Attorney project.

To prepare for filing an incapacitated individual’s tax return, substitute decision makers are required to maintain records such as T-slips, any records related to a corporation or business, as well as any deductions, expenses or charitable donations.

There is also a tax credit available for incapacitated individuals, he says, which requires the substitute decision maker to have a physician fill out a form and submit it with the initial tax return when the tax credit is being claimed.

“In short, the same things that a substitute decision maker would do for themselves for record keeping, needs to be done for the incapacitated. And if the substitute decision maker themselves are not sophisticated and are not keeping proper records, that makes it even worse, because they now have a double burden for themselves and for the incapacitated. So they may want to consider hiring a bookkeeper and an accountant to assist with that task,” says Rotfleisch.

In a situation where an incapacitated person or a substitute decision maker has not filed income taxes for several years, a voluntary disclosure may be filed if the Canada Revenue Agency has not yet approached the taxpayer, says Rotfleisch. A voluntary disclosure often results in no penalties for the taxpayer, no prosecution and even a break on the interest owing.

“The easiest thing is, when you become aware of the fact that your incapacitated individual has not filed is to do the voluntary disclosure through a tax lawyer and that way, it gets everything cleared up,” he says.

As Rotfleisch explains, it is important for substitute decision makers to know that unpaid tax debts do not go away in situations where an individual has become incapacitated.

“If CRA assesses you for taxes owing, they can just go in there and collect them,” he says, by seizing bank accounts, pensions, or putting a lien on a house.

“It’s very important to be proactive and not wait, because the next thing you know is, you get a notice that the bank account has been frozen, and that’s a very nasty situation to be in, for anyone, especially for a substitute decision maker, where the incapacitated individual is in a nursing home and has to pay $2,500 a month in fees — where’s that money coming from if the bank account’s been frozen?”

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