Claiming the disability tax credit is less complicated than you might think—just take it a step at a time
By Olev Edur
It’s a shame—many Canadians with disabilities, including retirees, have such difficulty claiming the disability tax credit (DTC) that they feel compelled to hire specialized consultants to help them, and those consultants’ fees can amount to thousands of dollars.
A 2019 review conducted by the University of Calgary’s School of Public Policy found that 1.8 million Canadians live with a severe disability, but only 40 per cent accessed the DTC; many reportedly didn’t bother because the application process was too difficult to navigate.
What’s particularly disturbing about this sad state of affairs is that while the process and paperwork may seem intimidating at first glance, there’s no reason the average person can’t do it on his or her own. The key is to break the process down into a few simple steps.
While Good Times normally provides a guide to the federal income tax return in the April issue every year, this particular tax matter is of sufficient importance that we’ve created this special expanded DTC guide in advance. We hope it will give those who might qualify sufficient time to prepare the necessary documentation for their 2019 tax returns.
The following is a step-by-step explanation of what’s involved in claiming the disability tax credit, as well as a summary of the additional benefits that may result from qualifying for this credit. The steps are best illustrated as a series of questions.
1. How does one qualify for the disability tax credit (DTC)?
The essential first step in claiming the DTC is determining whether the severity of the condition rises to the Canada Revenue Agency (CRA) definition of eligibility. This question can be answered only by a qualified medical practitioner, who, depending on circumstances, could be a:
– medical doctor
– nurse practitioner
– occupational therapist
– speech-language pathologist
To qualify for the DTC, a person must suffer from “a severe and prolonged impairment in physical or mental functions” which has lasted or is expected to last for a minimum of 12 months and which “markedly restricts” a person’s ability to perform at least one basic activity of daily living. Daily living activities are listed in CRA Guide RC4064: Disability-Related Information (you’ll find it at canada.ca) as:
– eliminating (bowel and bladder functions)
– mental functions necessary for everyday life
The tax rules contain further explanations and definitions for “markedly restricts,” including some seemingly odd and arbitrary distinctions, but you don’t need to concern yourself with these, except to the extent that your medical practitioner might need some further information on your day-to-day activities so that he or she can complete the relevant parts of Form T2201: Disability Tax Credit Certificate. (Form T2201 is available at all CRA offices, and an online interactive version (meaning it can be completed on a computer) can be downloaded from the CRA website at canada.ca; search for “T2201.”)
While the T2201 Certficate is a somewhat daunting six-page form, you need complete only the first page, which requires some basic personal information about you and possibly your spouse/partner or dependant (if he or she has the disability). Special note should be made, however, of Section 3, where you can check a box allowing CRA to adjust your past years’ returns where applicable. This potentially important option is discussed in more detail below.
For the rest, it’s up to your doctor to complete the relevant (and more complicated) sections on the next five pages of the Certificate. These sections, each corresponding to a basic living activity, require medical evaluations as well as onset dates (chronic conditions may have existed for some time before being diagnosed and finally being claimed for a credit), and an opinion on how long the impairment is likely to last.
Once the form has been completed and sent off with your return, CRA will render a judgment and if the Certificate is approved, you’ll be entitled to claim the disability amount of about $8,300 on line 316 of your tax return each year, unless otherwise indicated in the approval.
(Note that many of the figures in this article are subject to annual indexation and the current year’s exact figures were unavailable at press time. Provincial tax rates as well as credit levels vary widely, but that $8,300 federal tax credit would translate into total federal/provincial tax savings of between $1,500 and $2,000 for most Canadians.)
Because this credit is non-refundable, it can be used only to reduce tax, not to generate a cash refund if your tax bill is zero. Any unusable credit may, however, be transferrable. As we saw in the article “Understanding the Caregiver Tax Credit” in the December 2019 issue of Good Times, if you’re caring for someone with a disability, you may be able to claim unused portions of that person’s tax credits and medical expenses on your own tax return. Similarly, you can claim unused portions of a spouse/common-law partner or minor dependant’s DTC entitlement (see below).
2. Is the disability related to a spouse/common-law partner or a dependant?
You can file a DTC claim on behalf of yourself, your spouse/partner, or a dependant under the age of 18; the same T2201 is required; you need only change a few entries in Section 2 of the first page. Dependants 18 or older must file their own Certificates and claim the DTC themselves (although you could certainly help them make their claim).
Once the Certificate has been approved, the spouse/partner or dependant is entitled to claim the credit, although often a disabled person doesn’t have enough income to make full use of it. Thankfully, though, as already noted, CRA allows you to claim unused portions of their DTC (and some other non-refundable credits, including medical expenses) on your own return. The process varies slightly, depending on who has the disability and which credit(s) are claimed.
A spouse/partner’s DTC and most other non-refundable credits must be claimed on line 326 after completing Schedule 2. Medical expenses of a spouse/partner are claimed directly on line 330 of Schedule 1, but there’s a deductible on your claim here (see the article on page 35 on medical expenses).
When it comes to dependants, they must be related to you (within limits) by blood or marriage/common-law union and rely on you for some or all basic necessities such as food, shelter, and clothing in order for you to be able to claim their unused credits.
If the dependant is under 18, you may be entitled to claim an additional supplement of as much as roughly $4,900 on top of their $8,300 DTC, or about $13,200 in total, after completing the relevant sections of the worksheet for Schedule 1. The total should be entered on line 318. As with spouse/partners, though, medical expenses related to dependant children go on line 330 and are subject to that same deductible.
If the dependant is over 18, he or she must file their own Certificate, but you still can claim the unused portion of their DTC on line 318, after completing Schedule 1. You can also claim his or her medical expenses on line 331; interestingly, a claim on this line isn’t subject to the same deductible that applies to medical expenses of spouse/partners and dependant children.
3. How long has the condition been a “marked restriction”?
As noted earlier (and tacitly acknowledged in the T2201 itself), a debilitating condition may have persisted for years before finally being diagnosed, and a DTC claim may come years later (if at all, judging from those University of Calgary findings). Fortunately, the CRA allows you to file amendments to previous tax returns going back as many as 10 years.
What this means is that if you or a loved one has been living with a disability for many years and your Certificate is approved, you may be entitled to claim the DTC for as many as 10 years back, plus the current year. That could translate into total tax savings of as much as $16,500 to $22,000! Small wonder the consultants have been circling.
Coming back to the T2201, if you check that box granting permission to adjust previous tax returns and your Certificate is approved, CRA will automatically include the federal and provincial disability amounts for all years that apply (except for residents of Quebec, who have to file a separate provincial return).
If you want to make other changes—if, for example, your application is on behalf of a spouse/partner or a dependant or you want to claim additional past medical expenses as a result of DTC approval—then you’ll need to submit to CRA a completed form T1-ADJ (Adjustment Request), for each applicable year you want changed (based on the onset date of the condition as stated in the T2201).
4. What more can an approved DTC Certificate mean?
So far we’ve covered the basics of claiming the DTC, but (as they say in those TV ads) wait, there’s more! The DTC is sometimes called the gatekeeper credit, and this is because eligibility for it confers eligibility for several other possible tax breaks, as well. Some of these may not be relevant to retirees, as they’re geared to younger claimants, and they require some additional effort, but, depending on your circumstances, the rewards may be well worth that effort. The following is a brief rundown of a few additional tax-savings opportunities stemming from DTC eligibility, although space prohibits a completely detailed explanation of each. You can get more information from the Guide RC4064 Disability-Related Information or by contacting CRA directly at 1-800-959-8281.
a) Registered disability savings plans. RDSPs are available only to DTC recipients, who may be able to receive substantial government funding for their plans through Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSGs).
If the RDSP owner’s family income is less than about $95,000 (for 2020, indexed), the CDSG provides 3-to-1 matching grants on the first $500 contributed to the plan each year, and 2-to-1 grants on the next $1,000 contributed. The maximum annual CDSG contribution is $3,500, with a lifetime limit of $70,000. If family income is higher than $95,000, the CDSG provides 1-to-1 matching grants on up to $1,000 of contributions yearly.
The CDSB provides up to a $1,000 bond a year, with a lifetime limit of $20,000, to lower-income (family income below about $48,000) owners of RDSPs, on top of their CDSG entitlement. Furthermore, unused CDSG and CDSB entitlements can be carried forward to future years if they can’t be used right away.
Repayments are required if the RDSP is terminated or if the beneficiary stops being eligible for the DTC or passes away, but only on bonds and grants paid within the 10 preceding years. Otherwise, unlike tax credits, this is free cash provided for your benefit. And it’s on top of the usual tax deduction provided on a taxpayer’s contributions to a registered plan.
b) Additional credits and tax deductions. Depending on the circumstances, certain additional claims may be allowed as a result of eligibility for the DTC. For example, if you’re receiving attendant care in your home, you can claim the cost as a medical expense only if you are eligible for the DTC (or have a written certification from a medical practitioner that states the services are necessary).
The Working Income Tax Benefit (WITB, line 453 on the fourth page of the T1 return form) is for low-income people and families who have earned income from employment or business, and it includes a basic amount and a disability supplement of as much as $529. This is a full deduction from your taxes, rather than a non-refundable amount that translates into a much smaller tax credit.
To claim the WITB you must complete Schedule 6. If both you and your spouse/partner are entitled to the disability amount, only one of you can claim the basic benefit, but you each can claim the disability supplement on a separate Schedule 6.
The disability supports deduction (line 215 and/or line 330 of the tax return) allows a person with impairment in physical or mental functions who is working or going to school to claim some medical expenses as a disability supports deduction. They can claim these expenses on or split the claim between these two lines, as long as the total of the amounts claimed is not more than the expenses paid.
Home accessibility expenses (line 398) can be claimed if you are 65 years of age or older or qualify for the DTC. You can claim up to $10,000 a year in eligible expenses if you own a home in Canada and paid for eligible renovations to improve the safety or accessibility of your home. The renovations must be permanently part of the home and allow the person to gain access to the home or be mobile or functional within the home, or they must reduce the risk of harm within the home or in accessing the home.
If the disabled person is a dependant child under age 18, then in addition to the DTC, the child will be entitled to a disability benefit of as much as roughly $2,900 for the year (paid in monthly instalments of about $240). Again, this is a full-value benefit, rather than a non-refundable amount.
5. What can you do if a Certificate is denied?
If your DTC application is denied, CRA will send you a notice of determination explaining why. You have a number of options for disputing the decision. First, though, check your copy of form T2201 against the reason given and make sure that you or your medical practitioner didn’t make any errors or omissions in completing the form. Beyond that, you can:
– Call CRA (1-800-959-8281 within Canada and the United States) to ask questions and discuss your case.
– Request a review of your application by writing to your CRA tax centre and including any relevant medical information that you have not already sent, such as new or updated medical reports, or a letter from a medical practitioner familiar with your situation. The information you provide should describe how the impairment affects the activities of daily living.
– File a formal objection to appeal the initial decision no later than 90 days after CRA mails the notice of determination.
If you need more information, go to canada.ca/disability-credits-deductions or call CRA directly at 1-800-959-8281.