The question
After two pneumonias, a fall and three hospitalizations, that was enough: Lucille, 87, decided to leave her subsidized accommodation in a private residence for seniors (RPA).
“She has been a widow for a year,” says her son Julien. “My father died in November of last year, in 2021. It was quite new for her to find herself alone in an apartment. »
His latest crash knocked the decision down.
“She wants to go live with my brother, who has been ready to take her in for several years. »
Julien’s brother is a full-time teleworker. “He can take a look at my mother. He lives with his spouse in the house. »
Lucille would occupy a room. She could use the communal kitchen, but she would likely share most meals with them.
“They would have the same address. It is not a bigenerational house. »
She wants to pay a pension to her son, but she doesn’t know how much she should pay.
“I told him: we should know if you lose any advantages in going to live with your son compared to other places. »
The questions are piling up: is she entitled to credits for home support? Should his son charge him for services? Can he himself obtain compensation? Should he declare the pension that his mother will pay him?
“We wonder what things to think about,” he continues. We were trying to understand and I couldn’t find all the information I was looking for on the internet. »
Until now, Lucille lived in an apartment in an 80-unit RPA managed by a housing NPO. “With my father, she paid $730,” says Julien.
Since being widowed and occupying it alone, the three-bedroom unit has become subsidized and the rent has been reduced to $500 per month. Five suppers are served to him per week, for an additional cost of approximately $250 per month.
“No service except meals in the evening,” he says. There are activities, but no medical services. »
Her son, who completed his parents’ tax returns, notes that Lucille received $ 7,400 in Old Age Security (PSV) pension and $ 1,400 from the Quebec Pension Plan (RRQ) in 2021.
Her husband received $6,800 in PSV and $12,000 in QPP until his death in November 2021. “I imagine my mother receives half of that,” says Julien.
Lucille has about $50,000 in a tax-free savings account (TFSA) – her only savings.
What will be the repercussions of this move?
In numbers
The income of Lucille*, 87, in 2021:
- PSV : $7500
- QPP : $1400
Her husband’s income in 2021 (death at the end of 2021):
- QPP : $12,000
- PSV : $6800
His savings:
The answer
PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVES
Raphaël Hainault, wealth management advisor and portfolio manager within the Hainault-Harvey-Simard team, at FDP
Before any financial or tax consideration, such a decision is “more focused on the well-being of the person”, formulates the financial planner Raphaël Hainault, wealth management advisor and portfolio manager within the Hainault-Harvey- Simard, at FDP.
“We have to make sure that everyone finds their account,” he says. And he’s not talking about an RRSP account here.
Several points must be clarified beforehand, to prevent small frictions from degenerating into clashes, then into acrimony. He lists a few.
- What are the common and private areas?
- How to organize when one or the other has guests?
- How will the small household chores (washing Lucille’s clothes, for example) be shared?
- What is the plan in case Lucille loses her autonomy?
- What if there are changes in her son’s financial or personal situation?
Revenues
“Lucille’s ability to pay is rather limited,” observes Raphaël Haineault.
His income is limited to the QPP pension and the Old Age Security benefit.
Following the death of her husband, she receives the surviving spouse’s pension from the QPP, which is added to her own pension of $1,400 per year.
The combined pension is the maximum between two calculations:
- his pension ($1,400) plus 37.5% of the deceased’s pension, estimated here at $12,000, for a total of $5,900;
- or 60% of his pension plus 60% of his spouse’s pension, i.e. $8,040.
The 6.5% indexation expected in 2023 will adjust this last result to $8,563.
With the recent increase for Canadian citizens age 75, Lucille’s Old Age Security benefit will be $9,076 in 2023.
The deceased’s PSV is not transferred to the surviving spouse. However, based on her other income, essentially composed of the combined QPP pension, Lucille will be entitled to the Guaranteed Income Supplement (GIS), which our planner estimates at $6,420.
His income will thus amount to some $24,060, but his taxable income, from which the GIS is excluded, is instead established at $17,639.
He slightly crosses the minimum provincial and federal tax thresholds, but the various credits to which Lucille is entitled should practically eliminate any tax liability.
However, she will have to pay an estimated drug insurance contribution of $523, which brings her net income down to $23,536.
For the purposes of his calculation, our planner staggers Lucille’s TFSA withdrawals until age 100. Neglecting performance, he adds $3,846 to Lucille’s annual budget, for a total of $27,382, or $2,282 per month.
Its contribution to housing
How much should Lucille contribute to housing costs at her son’s house?
To establish a basis for reflection, Raphaël Hainault recalls that “housing should not normally exceed 35% of a person’s budget”.
On a monthly budget of $2,282, the maximum amount is thus set at $798 per month.
To this must be added a contribution to other expenses (food, electricity, entertainment, etc.): our planner suggests a share equivalent to 20% of his income, or $456 per month, for a maximum rent of $1,254.
Lucille keeps about $1,030 per month for her personal expenses.
“If Lucille does not want to touch her TFSA to maintain a financial cushion, the rent would then be $933,” says Raphaël Hainault.
This is a platform for discussion between mother and son, the principle of agreeing on “a rent that allows the son not to ‘finance’ his mother’s accommodation”, he formulates. he.
From a tax point of view
The calculation could also be based on the actual cost, with a proportion of housing expenses (mortgage, property taxes, maintenance, insurance, telecommunications, etc.) based on the percentage of occupancy and use of the premises. Lucille would also pay her fair share of food.
In an informal contribution-to-expenses formula, payments made by Lucille would not be taxable to the son. On the other hand, he could not deduct the costs incurred to accommodate his mother “since there is no real rental”, informs Raphaël Hainault.
However, “this avenue is uncomplicated,” he argues.
In another avenue, the son could rather establish an official lease and ask for a fixed rent, taxable income from which he can then deduct the costs related to this rental: a percentage of property taxes, electricity, etc.
“It should be noted that if this rent is lower than the market value, the son will not be able to declare rental losses since this preferential rent will be made to a person he knows”, underlines the planner, before to add: “I would certainly choose the first option to facilitate everything. »
The impact on credits
By living with her son, Lucille loses the single person credit, but since this credit is non-refundable and Lucille pays almost no income tax, the loss is practically nil.
“The other credit lost will be that for home maintenance, since it will no longer really be a tenant or owner”, raises the planner.
His current rent provided him with a credit that probably did not exceed $1,000 per year, he estimates. This time it’s a dead loss…
On the other hand, her son will be entitled to a tax credit for caregivers, which would allow him to save $1,266 in taxes in Quebec.
No financial obstacles stand in the way of the project, concludes the planner.
“It’s more the human aspect that is of paramount importance here: we have to ensure Lucille’s safety and well-being while ensuring that this does not harm her son’s quality of life. »
* Although the case highlighted in this section is real, the first names used are fictitious.