The Disability Tax Credit
Posted by Gail | Filed under Taxes
Many people have been asking for more information about the disability tax credit. Last month Susan Mladenovich, CMA, who told us all about the new Registered Disability Savings Program, promised to give us a lowdown on the Disability Tax Credit. We’ll she’s a woman of her word. Email Susan directly at firstname.lastname@example.org or visit her website at www.accountingdepartment.ca. Here’s Susan…
There are two types of disability tax credits: non-refundable and refundable. Non-refundable tax credits can reduce tax owed to zero, but can’t be used to get a refund. A refundable credit can reduce your tax below zero and provide you with a refund.
The Disability Tax Credit (DTC) is a non-refundable tax credit, which means that someone who has low or no income will not benefit from this credit. However, the credit is transferable. So someone who qualifies could transfer all or a portion of the DTC to a spouse – legal and common law — who can then reduce his/her tax payable.
A lot of confusion comes from is the fact that the criteria for qualifying for the DTC is not precise. In 2001, the criteria were expanded to include life sustaining treatments requiring 14 hours per week or more. In 2005 the criteria were expanded further to include the time needed to calculate dosage for medications that require dosage on a daily basis.
To simplify the qualifying criteria, the condition must exist for longer than 12 months, and must markedly affect one or more of the basic functions of life, which include walking, eating, speaking, and self-care, or require a significant time commitment to manage life sustaining treatments.
You are eligible for the disability amount only if a qualified practitioner certifies that you have a severe and prolonged impairment and it’s effects on the form T2201, and the form is approved. There is a self-assessment questionnaire available on the T2201 form itself, so you can have a look-see to determine if you might qualify. Also on the form are definitions of “life sustaining treatment” along with other terms. If you believe you may qualify, proceed with an application. No harm is done if you don’t receive approval but tremendous benefits can be claimed if you are.
If you are approved for the DTC, it is usually retroactive and in place for several years. Once approved, claims for the past years are done through a T1 adjustment. In the event that the approved taxpayer does not require the entire credit, an adjustment must also be done for a spouse’s or parent’s return. These adjustments are processed manually by the tax centre so they may take some time, but they can result in large refunds.
Here are some examples for you:
- A man and his wife have never applied for the credit. Based on statements by the husband, their accountant recommended that they request their doctor to complete a T2201 form to apply for the DTC based on the wife’s deteriorating condition due to dementia/Alzheimers. The husband was reluctant due to the fact that his wife was in denial about the severity of her impairment. The application was approved retroactive to 2004. After adjustments, the couple received over $7,000 in refunds.
- A couple with young children have been challenged by the wife’s cancer diagnosis. Her condition requires ongoing travel for treatment at Princess Margaret Hospital. Her application was approved and her taxes were reduced by $1,700 in 2007. In addition, she applied for credits for travel and meals for the trips into Toronto for the treatment.
- A gentleman experienced a rapid decline after being diagnosed with pancreatic cancer, passing away within four months of the diagnosis. We processed a DTC application after his death and were able to adjust the return for the year he died. And a portion of the credit was transferred to his common law partner.
If you think you may qualify for the Disability Tax Credit, here are the steps you need to follow?
- Download the T2201 form from the CRA website. There is also a fillable version of the form.
- Have your doctor complete the form. Most family doctors are familiar it. They may charge you a small fee for completing the form.
- Send the form into the CRA and wait. And wait. And wait. Your application is reviewed to ensure that you meet the criteria.
Once you are approved, you will receive a letter indicating to which years any retroactive approval is available. The letter will also indicate how long you may claim the deduction without having to reapply.
For retroactive years, you can download an adjustment form or request that your tax preparer complete the form for you. Send the form in and wait. And wait. And wait! These adjustments often take 6 – 8 weeks to process.
If you or your spouse will be claiming this credit, you should update your withholding information at your workplace by completing a new TD1 form. This will reduce the tax withheld on each pay, putting the money into your hands sooner rather than waiting for your tax return to be assessed.
Remember, once you are eligible for the DTC, you are automatically qualified for the Registered Disability Savings Account including all the grants and bonds.
FYI: I’ve had to go in and delete some of the comments to make room for new posts… you guys are the first to top out a comments section. I deleted a lot of “thank you”s and some stuff that was repeated often to leave the comments with the most info for new arrivals.