Though many are aware that the disability tax credit is available for those who suffer from a “severe or prolonged physical or mental impairment,” many taxpayers may not fully appreciate the scope of impairment included in this CRA definition.
The disability tax credit is not just for the severely disabled. That said, there are still strict criteria that must be met in order to qualify.
What is the Disability Tax Credit?
The disability tax credit or DTC is a non-refundable tax credit to help people cope with their disability. It is also designed to help supporters, such as parents, reduce the amount of income tax they must pay. There is also a supplement available for people under 18 years of age at the end of the year. The whole point of these tax credits is to provide a more level playing field by allowing some tax relief for costs associated with disabilities. These necessary expenses for the disabled or those supporting the disabled may be costs that most taxpayers do not face.
The amount of the federal disability tax credit is $8,113 for 2017, with a supplement of $4,732 for 2017 for taxpayers under 18 years of age. Provincially, the tax credit ranges from $6,058 to $14,417 depending on your province of residence.
The supplement is reduced when total child care and attendant care expenses claimed for the taxpayer under 18 exceed a threshold ranging from $4,884 to $5,722 in 2017 and eliminated completely when those expenses exceed $12,779 to $21,273 for 2017, depending on your province of residence.
This equates to about $1,600 for Ontario residents to about $2,600 if you reside in Alberta, in annual savings for the disability amount, and about $2,500 for Ontario residents to approximately $4,400 per year for residents of Alberta, when you include the supplement for taxpayers under the age of 18.
A bonus is that you may be entitled to retroactive tax credit refunds for up to 10 years if the disability existed in the past but you failed to apply for it. We have examples of clients who have been able to file for prior years, resulting in up to $25,000 in retroactive tax credit refunds. Interestingly, Form T2201 (referred to below), now makes it simple to apply for previous tax years to be automatically adjusted, so it doesn’t require any filing of adjustments to make the claim.
Related Article: Three D's of Tax Planning
Who is eligible for the DTC?
You are eligible to receive the DTC once Form T2201 has been approved by the CRA. You will need to have a medical practitioner fill out this form and certify that you indeed have a severe and prolonged impairment with a description of how it affects activities of daily living. Effective March 22, 2017, a nurse practitioner can certify eligibility for the DTC for all types of impairments. Other medical practitioners that can certify in their respective fields include audiologists, occupational therapists, optometrists, physiotherapists, psychologists and speech-language pathologists.
The form is quite easy to complete and if the medical practitioner charges a fee to complete the form, that fee may be claimed as a medical expense. You may still want to speak with your tax professionals regarding your circumstances to get advice, but the completion of Form T2201 likely does not require assistance.
Eligibility for the DTC may include less apparent disabilities. According to the CRA, to qualify, you must meet one of the following criteria:
- markedly restricted in at least one of the basic activities of daily living
- significantly restricted in two or more of the basic activities of daily living
- require life-sustaining therapy
The disability must also be prolonged and present at least 90% of the time.
Of course, every scenario is reviewed on a case by case basis by CRA to determine eligibility. However, some conditions that may qualify include:
- Type 1 Diabetes
- Learning disabilities such as ADHD, ADD and Autism
- Cognitive disorders such as Dementia and Alzheimer’s
- Severe hearing Loss – even with the use of a hearing aid
- Crohn’s Disease
Some may hesitate for fear that they will be labeled as “disabled,” but it is important to note that all claims and benefits for the DTC program remain confidential within the CRA. The CRA is bound by the Federal Privacy Act guidelines that prohibit them from disclosing your private income tax information with any other entity without your written consent.
Not sure if you qualify? It is best to speak with an experienced accountant to discuss your personal circumstances. There are also various companies that claim they will help you qualify to receive the Disability Tax Credit – however, “buyer beware” certainly applies here. Some of these companies have been charged with obtaining the refunds fraudulently, whereby taxpayers may end up repaying their refunds in the future if they are not legitimate. Please see the following article from the CBC.
It is best to be leery about companies that purport to assist with the application process in return for a percentage of the amount recovered. These kinds of companies are the pariah of the tax world and should be avoided at all costs. The better option is to either do it yourself or hire an accountant.
Related Article: Top Tax Credits for Canadians
Find out if you qualify
The bottom line is there is no harm to filing a T2201 Disability Tax Credit Certificate to see if you qualify. The worse that can happen is the CRA turns you down. On the other hand, if you do qualify, you may be in a position to save $1,600 to $2,500 per year, if you are a resident of Ontario, in addition to retroactive tax credit refunds going back up to 10 years. Besides that, being eligible for the disability tax credit may open the way to other federal and provincial/territorial programs such as the Registered Disability Savings Plan (RDSP), the working income tax benefit and the child disability benefit.