Canada Revenue Agency (CRA) estimates that about a million Canadians may be eligible for the disability tax credit certificate (DTC)—and not yet applied for it. Some people picture children or young adults as the primary recipients of the disability tax credit, but many seniors and others may also qualify.
If you or a family member are eligible and have not yet applied to be approved for the DTC, you could miss out on the ability to:
- Claim the annual federal non-refundable tax credit ($8,001 in 2016), which reduces the taxable income of an eligible individual, or a supporting family member and other tax credits such as the caregiver amount and the supplement for individuals under 18. This then reduces the provincial tax amount where it is based on the amount of the federal tax.
- Contribute up to a maximum of $200,000 to a Registered Disability Savings Plan (RDSP) until the end of the year when the person turns 59, or on behalf of the individual with the DTC, and depending on your family income and age, apply for the Canada disability savings grant (up to a lifetime maximum of $70,000); and/or the Canadian disability savings bond of $1,000 per year (up to a lifetime maximum of $20,000)
- On your death, roll your RRSP and registered pension plan tax-free into the RDSP that has contribution room for a qualified financially dependent child or grandchild, due to a physical or mental infirmity.
- If the beneficiary of a testamentary trust qualifies for the DTC, the beneficiary can elect that the trust be a qualified disability trust (QDT), which can use graduated tax rates for any money earned and held in the trust—rather than only the top federal marginal tax rate of 29% introduced in 2016.
- Access certain other federal and provincial/territory programs, depending on the situation.
The DTC is completely separate from any CPP disability benefits, workers’ compensation, or provincial disability benefits that someone might receive. For example, an individual receiving CPP disability benefits does not automatically qualify for the DTC.
To apply for the Disability Tax Credit Certificate (DTC), complete Part A and Part B of Form T2201 Disability Tax Credit Certificate and submit the form to CRA at any time of the year. CRA will assess the application to determine if the person is eligible for the DTC.
The individual (or their representative) completes part A of Form T2201 Disability Tax Credit Certificate. If you are a member of an association or charitable organization related to your impairment, they may be able to provide you with some direction to reduce any unnecessary delays or the risks of an appeal. The CRA site includes a self-assessment questionnaire. Some people might unnecessarily eliminate themselves when they see the wording “90% of the time” related to their impairment.
A qualified practitioner (who could be a doctor or other eligible practitioners) then completes Part B of the form with all the necessary information if, in their opinion, the person has a “severe and prolonged impairment” or that the effects of those impairments mean it takes an inordinate amount of time to do an activity—considered three times as long as the average person (in the judgement of the practitioner).
When an application is approved, the approval period for using the disability tax certificate may be indefinite or may require infrequent review, depending on the impairment. It may then be possible to apply for a reassessment of taxes paid for tax years covered by the date the application, which states the disability began, for up to a maximum of 10 prior calendar years.
Sometimes the T2201 form can be completed and certified on behalf of a deceased taxpayer, if it could reasonably be expected that the serious and prolonged mental or physical impairment would have lasted more than 12 months, had the taxpayer not died. The executor would apply to have the affected tax returns reassessed if the application is approved—but CRA committed to new service guidelines in 2016.
CRA does not charge a fee to review or process applications for the disability tax certificate.
CRA does not charge a fee to review or process applications for the disability tax certificate. However, you may notice some promoters advertise or offer to prepare all the DTC paperwork for a fee. The Disability Tax Credit Promoters Restrictions Act was passed in 2014 to help reduce abuses by promoters who charge large fees, or fees that are a high percentage of any potential tax refund (with little or no costs upfront).
It is possible that some people have not applied for the DTC because they do not want to label themselves or a family member as disabled, or perhaps because the wording of the application form is a bit intimidating. Sometimes people think “that is just the way it is.”
Let your medical practitioner determine if you might be eligible for the disability tax certificate credit. If you apply and are approved, this credit is has at least five potential benefits and the taxes saved from non-refundable tax credits add up.
© 2017 — All Rights Reserved Sandra Foster — Financial Intelligence™