Understanding the Disability Tax Credit in Canada

Living with a disability often comes with unique challenges, including financial strain. To help alleviate some of the financial burdens, the Government of Canada offers the Disability Tax Credit (DTC). The DTC is designed to reduce the amount of income tax individuals with disabilities, or their supporting family members, owe. This non-refundable tax credit provides critical relief for individuals facing additional expenses due to their disability.

In this guide, we’ll walk you through who qualifies for the DTC, how to apply for it, and the substantial benefits it offers. Whether you’re applying for yourself or a family member, understanding the Disability Tax Credit is crucial for managing financial well-being.

What is the Disability Tax Credit (DTC)?

The Disability Tax Credit is a non-refundable tax credit provided by the Canadian government. Its primary aim is to offer tax relief to individuals who have severe and prolonged physical or mental impairments. The DTC also provides financial support to the families of individuals living with disabilities, helping to reduce the overall income tax payable.

The DTC is intended to offset additional costs related to disabilities that are not covered by other financial support programs. Moreover, eligibility for the DTC opens the door to other programs, such as the Registered Disability Savings Plan (RDSP) and the Working Income Tax Benefit (WITB) Disability Supplement.

Who Qualifies for the Disability Tax Credit?

Eligibility for the DTC is determined by the Canada Revenue Agency (CRA) based on specific criteria. The main qualifying factors include having a severe and prolonged impairment in physical or mental functions, as well as requiring life-sustaining therapy.

Eligibility Criteria

To qualify for the Disability Tax Credit, an individual must meet the following criteria:

1. Severe Impairment

• The impairment must markedly restrict the individual’s ability to perform one or more basic activities of daily living. These activities include walking, feeding, dressing, hearing, speaking, mental functions necessary for everyday life, and bowel or bladder functions.
• The restriction must be present most of the time, even if there are periods of remission.

Example: A person who suffers from severe arthritis that prevents them from dressing or feeding themselves without assistance may qualify for the DTC.

2. Prolonged Impairment

• The impairment must have lasted, or be expected to last, for at least 12 consecutive months.

Example: Someone diagnosed with multiple sclerosis who experiences marked restrictions in mobility that are expected to last more than 12 months would meet this requirement.

3. Life-Sustaining Therapy

• Individuals who require life-sustaining therapy at least three times per week, for a total of 14 hours per week, may also qualify.

Example: A person with severe diabetes who requires regular insulin injections and ongoing medical monitoring could be eligible if their treatment time meets the threshold.

4. Cumulative Effect of Significant Restrictions

• Individuals who experience significant restrictions in two or more basic activities of daily living, and when combined are equivalent to a marked restriction, may also qualify for the DTC.

Example: A person with moderate impairments in hearing and mobility that together significantly impact their ability to carry out daily tasks may be eligible.

Certification by a Medical Practitioner

A key part of the DTC application is obtaining certification from a qualified medical practitioner. The medical professional must confirm the severity of the disability on Form T2201 – Disability Tax Credit Certificate.

Qualified Practitioners

Depending on the type of impairment, the following professionals can complete the form:

• Medical doctors and nurse practitioners can certify any impairment.
• Optometrists can certify vision impairments.
• Audiologists can certify hearing impairments.
• Occupational therapists can certify impairments related to walking, dressing, or feeding.
• Psychologists can certify impairments related to mental functions necessary for daily life.
• Physiotherapists can certify mobility impairments.
• Speech-language pathologists can certify impairments in speaking.

How to Apply for the Disability Tax Credit

Applying for the Disability Tax Credit involves several steps, and it is important to follow the process carefully to ensure your application is complete and accurate.

Step 1: Obtain Form T2201 – Disability Tax Credit Certificate

The application begins with Form T2201, which can be downloaded from the CRA’s website or obtained at a CRA office. This form must be completed in two parts: one by the applicant (or their representative) and the other by a qualified medical practitioner.

Step 2: Complete the Applicant’s Information

The first part of the form is filled out by the applicant or their legal representative. This section requires personal details such as your name, address, and Social Insurance Number (SIN).

Step 3: Medical Practitioner Completes the Disability Section

Once the applicant’s section is complete, the form must be taken to a qualified medical practitioner, who will assess the disability and fill out the medical portion. The medical practitioner needs to describe the severity of the impairment and certify that it meets the CRA’s eligibility criteria.

Step 4: Submit the Form to the CRA

After the form is fully completed:

• By Mail: Mail the form to the appropriate tax centre. The address can be found on the CRA’s website.
• Online Submission: Some medical practitioners can now submit the completed form electronically through the CRA’s secure services.

Step 5: Wait for Approval

Once the form is submitted, the CRA will review your application and inform you in writing whether it has been approved or denied. Processing times may vary, so it’s best to apply well before tax deadlines if you intend to claim the credit for the current year.

Step 6: Reapplication or Appeal

If your application is denied, you can either reapply with additional information or file an appeal. The CRA allows applicants to provide more details or seek the help of a tax professional to strengthen their case.

Benefits of the Disability Tax Credit

The Disability Tax Credit offers a range of financial benefits, which can significantly reduce the tax burden for individuals with disabilities and their families.

1. Tax Savings

Federal Credit Amount

For the 2023 tax year, the base federal DTC amount is CAD 8,662. This amount can be used to reduce your taxable income, meaning you owe less in taxes.

Supplement for Minors

An additional amount of CAD 5,053 is available for individuals under 18 years of age who are eligible for the Disability Tax Credit. This supplement helps families who support children with disabilities.

Tax Reduction

The DTC is non-refundable, meaning it can reduce your tax payable to zero, but it will not result in a refund if no tax is owed.

Example: If an adult with a disability has taxable income of CAD 40,000, the DTC can reduce the amount of income subject to federal tax by CAD 8,662, potentially saving hundreds of dollars in taxes.

2. Transferable Credit

If the person with a disability does not need the full DTC amount to reduce their taxes to zero, the unused portion can be transferred to a supporting family member.

Eligible Family Members

The credit can be transferred to a spouse, common-law partner, parent, grandparent, child, grandchild, sibling, uncle, aunt, nephew, or niece. This allows families to share the financial benefits of the DTC.

Example: A student with a disability earning minimal income can transfer their unused DTC to their parent, who may use the credit to reduce their own taxes.

3. Access to Other Programs

Being eligible for the DTC also opens up opportunities to participate in other government programs designed to provide financial support to individuals with disabilities.

Registered Disability Savings Plan (RDSP)

Eligibility for the DTC allows you to open an RDSP, a long-term savings plan intended to help individuals with disabilities secure financial stability for the future. Contributions to an RDSP may be matched by government grants.

Working Income Tax Benefit (WITB) Disability Supplement

Low-income workers who are eligible for the DTC may also qualify for the WITB Disability Supplement, which provides additional financial assistance to individuals with disabilities who are working but earning low wages.

4. Provincial and Territorial Credits

In addition to federal benefits, each province or territory may offer additional tax credits that further reduce the amount of income tax payable. Check with your provincial tax authority to see if you qualify for these supplementary credits.

Common Mistakes and How to Avoid Them

To avoid delays or issues with your DTC application, be aware of these common mistakes:

1. Incomplete Forms

Make sure that all sections of Form T2201 are completed thoroughly by both the applicant and the medical practitioner. Any missing information may lead to delays or a denial of your application.

2. Incorrect Information

Double-check all personal and medical information for accuracy. Even small errors, such as incorrect SINs or medical details, can slow down the process or result in a rejected application.

3. Delay in Submission

Apply as early as possible to avoid delays. Processing times can vary, and submitting the form close to tax deadlines may result in missing out on valuable credits for the current tax year.

4. Not Reapplying When Necessary

If your approval was granted for a limited time, be sure to reapply before it expires. Many approvals are issued for specific periods, particularly for disabilities that may change over time.

5. Failure to Claim Retroactive Credits

If your DTC application is approved, you can request adjustments to previous tax returns (up to 10 years back) to claim retroactive tax credits. This can result in significant tax savings or refunds.

How BOMCAS Canada Accounting Firm Can Help

Navigating the Disability Tax Credit application process can be complex, but you don’t have to do it alone. At BOMCAS Canada Accounting Firm, we specialize in helping individuals and families in Edmonton and across Canada benefit from the DTC.

Our Services Include:

• Expert Guidance: Our team of tax professionals understands the intricacies of the Disability Tax Credit and can guide you through every step of the application process.
• Application Assistance: We’ll help ensure that Form T2201 is filled out accurately, increasing the likelihood of approval.
• Tax Planning: Our experts can help optimize your tax situation by maximizing credits, including any retroactive claims.
• Support for Appeals: If your application has been denied, we can assist in preparing and submitting an appeal.

Contact Us Today

Take the first step toward maximizing your tax benefits with the Disability Tax Credit. Reach out to BOMCAS Canada today to learn how we can help you or your loved ones navigate the DTC and other financial programs.

Phone: 780-667-5250
Fax: 780-851-2520
Email: info@bomcas.ca
Website: https://bomcas.ca

At BOMCAS Canada, we’re dedicated to supporting individuals and families across Canada in accessing valuable tax credits and financial planning resources.