Disability tax credit (DTC) is a non-refundable tax credit used to reduce the income tax you pay. It’s available for people with a severe and prolonged physical or mental impairment, subject to approval by the Canada Revenue Agency (CRA). It’s meant to help even out the tax burden by allowing some relief for disability costs since these are unavoidable additional expenses that other taxpayers don’t have to face.
For 2016, the federal nonrefundable DTC for an adult is $8,001. If the person with the disability is a child under 18, there is an additional supplement of $4,667, for a total DTC of $ 12,668.
When a person with a disability first hears about the Disability Tax Credit (DTC), a flood of queries usually follows. From how to apply for Disability Tax Credit, to Disability Tax Credit eligibility, and even Disability Tax Credit amounts, these factors vary on a case-to-case basis.
Who Qualifies for Disability Benefits?
First, let’s take care of the basics: what is Disability Tax Credit? Per the Canada Revenue Agency (CRA), Disability Tax Credit is a non-refundable tax credit used to reduce income tax for eligible individuals.
If you are eligible for the Disability Tax Credit, but find yourself in a position where you are unable to recover all or part of this credit (because of the lack of taxable income), the Disability Tax Credit can be transferred to your spouse, common-law partner, or any other supporting person.
Disability Tax Credit Eligibility
That leaves the key question: what are the Disability Tax Credit eligibility guidelines?
As alluded to earlier, the answer isn’t straightforward. While the CRA does set rules and stipulations, the truth is a person won’t know if they’ve qualified until the CRA processes the unique application.
In the broadest terms of Disability Tax Credit eligibility, three conditions typically must be met, which are as follows:
- You must have a severe impairment in physical and/or mental functions.
- This impairment must be prolonged such that it has been persistent or will remain persistent for a continuous period of at least one year.
- A qualified practitioner needs to certify that your impairment is severe and prolonged by completing the Disability Tax Credit Certificate.
Filling out the T2201 form and accompanying paperwork for the DTC application can be a meticulous, time-consuming process. More so, the necessary detail and diligence add to the complexity, as an incorrect application can lead to a rejected submission.
How to Qualify for the DTC
To qualify for the DTC, you must submit the Form T2201, Disability Tax Credit Certificate, and the CRA must approve your application before you file your income tax return for the year you’re claiming the credit. The disabled person (or a family member) complete Part A of the form and, depending on the nature of the disability, a medical doctor or other health practitioners such as an audiologist, optometrist or psychologist fill out Part B.
While the lengthy form may at first appear intimidating, Dollar sees no reason why DTC claimants should need to pay hefty fees to consultants to prepare their application. Read through it carefully and if you’re still confused, there’s a 1-800 number right on the form to call for help from CRA.
Based on the circumstances of each case, the CRA may approve the DTC certificate indefinitely or for a shorter, specified period. Alan Whitton, an Ottawa author of the Canadian Personal Finance Blog, applied for the DTC. Rhys is high-functioning on the autism spectrum, so they’ve only given a DTC for 10 years and he will have to be re-diagnosed in four or five more years. Depending on the onset of the disability, you may use the credit both in the current year and go back as far as 10 years, resulting in sizeable retroactive tax refunds. To have the disability tax credit back-dated, you must file a form T1Adj for each previous tax year in which the disabled individual qualifies.
Approval for the DTC can also open the door to other valuable federal, provincial or territorial financial assistance programs beyond the tax credit itself. For example, if you are in a nursing home, you can claim the medical expense tax credit for the portion of the expense paid for nursing care, but only if you first qualify for the DTC.
The registered disability savings plan, the working income tax benefit disability supplement and the child disability benefit are other programs for which the DTC is a “gatekeeper credit.”
Canadian Disability Tax Credit
Disability Tax Credit in Canada
Individuals suffering from a severe and prolonged mental or physical impairment can claim a federal disability amount of $8,001 for 2016. In the event the person using a disability is a child under 18, there’s an additional supplement of $4,667 for 2016, for a total disability amount of $12,668. To qualify, a doctor must certify on Form T2201 that there exists a severe and prolonged impairment that “markedly restricts” the individual’s daily living activities. The impairment must have lasted, or can reasonably be expected to last, for a continuous period of 12 months.
Those making a new application for this credit will find that the CRA will review the claim to determine eligibility before assessing the tax return. For this reason, if you’re claiming the disability tax credit for the first time, you must file your tax return. Once approved, this credit can continue to be claimed as long as circumstances do not change. There is no requirement to file a new certificate each year unless the CRA asks for one.
A certificate might be requested for a deceased taxpayer, provided it could reasonably be expected that the serious and prolonged physical or mental impairment would have lasted more than 12 months had the taxpayer not died.
If you can’t take advantage of the credit, it may be transferred to your spouse, common-law partner or other supporting people. The list of supporting relatives who can claim a person’s unused disability tax credit includes a parent, child, brother, sister, aunt, uncle, nephew or niece. The key to making the claim is that the person on whose behalf it is made must be “dependent on the taxpayer for support.”
A number of programs and services are available for persons with disabilities to help them and their caregivers cope with the added expenses and to facilitate their full participation in society. The Canada or Québec Pension Plan administers monthly income programs.
The Canada Student Loan Program, as well as the Canada Mortgage and Housing Corporation (CMHC), can help assist homeowners and landlords in modifying their property to make it more accessible. Each province and territory also provide its own programs and there are several tax breaks administered by the CRA.
What are the Tax Credits and Deductions Related to Disabilities?
In addition to common deductions like child care expenses, Canada Child Benefit, or the spouse (spousal RRSPs in Canada) or common-law partner amount, there are many credits and deductions that are particularly relevant to persons with disabilities as well as their caregivers. The most important is the Disability Tax Credit or disability amount. Eligibility for the disability amount opens the door for other credits and deductions. Please note that the CRA’s eligibility requirements may differ from that of other programs.
Deductions and Credits for Caregivers
The amount for an eligible dependent, infirm dependents age 18 or older and/or the caregiver amount will help you offset your expenses when you care for a dependent with a disability. Finally, you or others can contribute to a special savings account, the Registered Disability Savings Plan (RDSP) for them. Contributions are not tax deductible but will be partly matched by the government through Canada Disability Savings Grants and Bonds.
Deductions and Credits for Persons with Disabilities
The disability supports deduction enables you to deduct expenses related to going to work, to school or to do research. The Working Income Tax Benefit Disability supplement is designed to encourage disabled Canadians to enter and stay in the workforce.
The Home Buyer’s Tax Credit allows people to claim an amount for a home purchased for the benefit of a person with a disability. In addition, you may be able to apply for a refund on your gas and be exempt from the GST/HST on certain goods and services.
Medical Conditions That Qualify for the Disability Tax Credit
Any Canadian of any age who has a significant health condition may qualify for the Disability Tax Credit. BMD specializes in helping Canadians with health conditions to obtain credits that they are due. The Disability Tax Credit (DTC) can often bring over $25,000 to qualifying claimants. Disabled Canadians, as well as those less affected and those who have health conditions and are restricted in their daily abilities, can benefit from the program! Many Canadians with medical conditions qualify for this particular income tax benefit and are simply not aware they do. BMD Services help Canadians with disabilities, as well as those with lesser restrictions, obtain their tax benefits. These refunds are important to those who qualify as these can equal to $25,000 in a lump sum, as well as $2,500 per year for current and future tax years.