What Is The Disability Tax Credit?

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What is the disability tax credit
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If you are a disabled person living in Canada, you are eligible for many government benefits. One of these benefits is the Disability Tax Credit (DTC). In order to qualify for these benefits, you will need to apply for them. So let’s uncover more about the DTC and how it may help you or people you know who qualifies.

To help all your tax needs, here are a few of our top articles for you.

What is the Disability Tax Credit?

The Disability Tax Credit (DTC) is among the most valuable tax credits available to individuals with disabilities. Canadians with a severe and sustained physical or mental impairment may be eligible for a tax credit that decreases their tax liability but is not refundable.

However, why exactly is it one of the most crucial? Due to the fact that being DTC qualified not only gives you access to various federal, provincial, or territorial programs but also enables you to deduct a maximum federal amount of$8,662 plus a maximum supplement of $5,053 for someone under the age of 18 (for 2021). Canadian workers with disabilities get a Disability Supplement, while children with disabilities receive the Benefit.

Registered Disability Savings Plans (RDSPs) are made possible by the DTC as well. You may assist someone who is qualified for the DTC to feel more secure about their financial future by contributing to this tax-free savings plan. If a beneficiary loses DTC eligibility after 2021, there is no longer a temporal restriction on how long their RDSP may stay open.

If you are eligible for the federal DTC, you may also be eligible for a tax credit in your own province or territory. Requesting a change for up to ten years is possible if you did not include these sums in your tax returns in the past.

A doctor’s statement on Form T2201, Disability Tax Credit Certificate, attesting to your disability and detailing how it has affected your life, is required to apply for the DTC.

Keep in mind that you may file for DTC benefits for either yourself or a family member who is very ill. You may give the unused portion of the credit to your spouse or another dependent if you don’t need it to bring your tax liability to zero.

How to apply for the Disability Tax Credit

If you or your spouse/common-law partner/child has a qualifying disability, you may be eligible for a tax credit.

To apply, either the applicant with a disability or their legal guardian must fill out Section A of Form T2201. If you are applying for the DTC on behalf of someone else, such as a child, you may fill out Part A of the form as the applicant’s legal agent.

Part B of the form has to be filled out by a medical professional. This might be done by a doctor, optometrist, audiologist, occupational therapist, psychologist, or speech therapist, depending on the nature of the impairment.

After completing the form, submit it electronically via your CRA My Account or by mail to your local tax office.

To learn how to claim this credit on your TP-1 provincial tax return in Quebec, please visit Revenu Quebec’s website.

The CRA will evaluate your claim when they receive your completed Form T2201 – Disability Tax Credit Certificate.

The years for which you are eligible to submit a DTC claim will be specified in a notification sent to you by the CRA after your application has been accepted. The application for the DTC must be resubmitted at the end of the specified time frame.

If the CRA rejects your request, you may ask for another look by compiling further evidence from supportive medical professionals and submitting it again. If you disagree with the CRA’s decision and want to do so formally, you have 90 days from the date the CRA sent your Notice of Determination to submit an objection.

How much can you claim?

The maximum value of the federal disability tax credit for the 2021 tax year is $1,299. The credit’s value is calculated by multiplying the disability amount ($8,662 in 2021) by the individual’s reduced tax rate of 15%. Inflation adjustments are made each year to this sum.

 

  • The maximum amount of the credit for a resident of Quebec is $1,085 (after accounting for the abatement for Quebec residents).
  • An extra sum is charged for each kid under the age of 18 in Quebec. The maximum amount of the extra credit is $633, after taking into account the abatement for residents of Quebec.

In Quebec, for the 2021 taxation year, the maximum value of the credit for severe and protracted mental or physical handicap is $524 and corresponds to the multiplication of the specified amount for the year, i.e., $3,492 in 2021, by the rate of 15%. Credits for a kid under18 in Quebec might total $2,242 across the federal and provincial levels.

What if a kid or other dependent has no taxable income? Thereafter, under specific circumstances, a parent or other family member may apply for the DTC. See line 31800 – Disability amount transferred from a dependent on the CRA website for further details.

How to obtain Form T2201

The T2201 Application for Certificate of Disability Tax Credit is available electronically. The fillable and downloadable PDF format should be used. Because of this, you may use a computer to fill out the form and store your answers. There are choices open to you even if you have low vision. It’s also possible to print the form and submit a handwritten version.

How to complete the application for the disability tax credit

To be clear, the form may be filled out either digitally or manually. There are two primary parts to the T2201 form. Information on the individual with the disability may be found in Section A. The questioned person completes this section. It is possible for a legal representative to fill out Section A on behalf of a person with a handicap. Disability specifics are described in Section B. The doctor completes this section. Make sure that there are no blanks in either Part A or Part B of the form before submitting it.

It is your responsibility to pay for any out-of-pocket medical costs incurred while completing Part B. You may write them off on your taxes as a medical cost. Receipts are important, so don’t throw them away.

Where do I send the T2201 form?

Parts A and B of Form T2201 must be completed before they can be submitted for review and approval. It may be mailed or submitted online. If you submit online, you may do so via Canada Revenue Agency My Account or Represent a client, if you are a legal agent. If you do it by mail, you may file it at the local tax center.

What happens if my disability tax credit application is denied?

If you are denied the Disability Tax Credit after submitting a T2201 form, you will not get any money from the government. Investigate the basis for the refusal first. It’s worth another go if you think you can correct it and reapply. The DTC may not be available to you if your condition does not fulfill the requirements. If, however, the DTC is beyond your price range, you should look at other possibilities. Then, look into whether or not any further grants or tax breaks apply to your situation. Caregiver tax credits, dependent tax credits, medical expenditure credits, and so on are only a few examples.

Is There a Time Limit on the Disability Tax Credit?

The DTC does expire; however, most applications are accepted for a period of time that is many years away (often 4 or 6 years).The CRA may grant you DTC eligibility for a certain number of years if they believe your disability and/or personal circumstances will improve over time; nevertheless, you will need to reapply for DTC benefits before the end of the eligibility term.

The CRA may provide permanent DTC approval if it determines that the individual’s disability and/or life circumstances are unlikely to change.

How Do I Claim the Disability Tax Credit Refunds For Previous Years?

Your doctor will inform the IRS in Section B of Form t2201 when your disability first manifested itself. However, the CRA may only evaluate for a period of up to ten years into the past, even if the DTC eligibility period might extend back in time indefinitely.

If you are unsure whether or not you claimed all of the credits for which you were qualified, you should file an adjustment request for all applicable prior years using your CRA account or by mailing in a T1ADJ form.

FAQ

You can get up to $8,870 of tax credits for the disability tax credit in Canada.

The disability tax credit works by offering people who qualify an annual amount of tax credits which they can add on to their tax filing. This will reduce their taxes payable. 

Anyone who experiences disability should apply for the disability tax credit. If you qualify you’ll be able to claim it for the qualifying years. 

The disability tax credit is not a monthly payment. It is an annual tax credit which you can claim on your tax filing, that reduces the taxes you need to pay to the government. 

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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