Do you or a loved one have a disability? Then you're probably familiar with the extra medical and living expenses required to accommodate a disabled person.
To offset some of these additional costs, you may receive financial help from provincial disability support programs. Or perhaps you're paying for these expenses out-of-pocket. But did you know you can also get tax relief in the form of the disability tax credit?
Here's how it works:
- What is the disability tax credit?
- Who qualifies for the disability tax credit?
- How much can you claim for the disability tax credit?
- How do you apply for the disability tax credit?
- Can the disability tax credit be backdated?
- What other benefits can the disability tax credit provide?
- What other tax credits can you get?
- Do you need help managing your medical expenses?
What is Canada's disability tax credit?
The disability tax credit (DTC) is a non-refundable tax credit used to reduce the income tax you pay. It's available for people with a severe and prolonged physical or mental impairment.
But please know that getting this credit requires approval by the Canada Revenue Agency (CRA).
The credit can help reduce the tax burden by allowing some relief for disability costs.
Who qualifies for the disability tax credit?
According to the Government of Canada, an individual may be eligible for the DTC if they have an impairment in physical or mental functions that is:
- severe and prolonged, and
- resulting in a marked restriction.
For more information visit the CRA’s eligibility criteria for the disability tax credit.
How much can you claim for the disability tax credit?
For 2022, the federal non-refundable disability amount is:
- $8,870 for an adult.
- up to $5,174 for an additional supplement,* if the person with the disability is a child under 18.
That can add up to a total disability amount of $14,044.
Provincial and territorial disability amounts are in addition to the federal amounts, and vary throughout the country.
Stuart Dollar, Director of Insurance Tax Solutions for Sun Life, explains that you can multiply the federal and provincial disability amounts by the lowest federal and provincial tax rates to determine the actual disability tax credit. "In Ontario, the federal part of the DTC is worth $1,330.50 ($8,870 X 15%), and the provincial part is worth $454.55 ($9,001 X 5.05%), for a total of $1,785.05. The federal supplement for a disabled taxpayer under age 18 is $776.10 ($5,174 X 15%) and in Ontario the provincial part is $265.13 ($5,520 X 5.05%), for a total supplement worth $1,041.23. In Ontario the total tax credit for a disabled child could be as much as $2,826.28,” he says.
What if a child or another dependant doesn't have any taxable income? Then a parent or other relative can claim the DTC under certain conditions. (See Line 31800 - Disability amount transferred from a dependant on the CRA website for more information.)
How do you apply for the disability tax credit?
To qualify for the DTC, you must:
- Submit the Form T2201, Disability Tax Credit Certificate.
- The disabled person (or a family member) completes Part A of the form.
- Depending on the nature of the disability, a medical doctor or other health practitioner fills out Part B.
- Receive approval of your application from the CRA before you file your taxes.
The form may appear lengthy and intimidating. But Stuart sees no reason why DTC claimants should pay high fees for consultants to prepare their application. "Read through it carefully," he says. "If you’re still feeling confused, there's a 1-800 number on the form to call for help."
Based on the circumstances of each case, the CRA may approve the DTC certificate indefinitely. Or, they may approve it for a shorter, specified period.
Alan Whitton, Ottawa author of the Canadian Personal Finance Blog, applied for the DTC on behalf of his son. "Rhys is high-functioning on the autism spectrum," Whitton says. "So they've only given us a DTC for 10 years. He'll have to be re-diagnosed in four or five more years."
Can the disability tax credit be backdated?
You may use the credit both in the current year and going back as far as 10 years. The eligibility depends on the onset of the disability. This may result in sizeable tax refunds.
How do you have the disability tax credit backdated? You must file a Form T1-ADJ for each previous tax year in which the disabled individual qualifies, according to the information the doctor or health professional includes in support of the application for the DTC. In Whitton's case, they recognized his son's autism as a "from-birth" brain injury. So, he was able to get a refund back to the date Rhys was born.
There's also another way to have this credit backdated. Section 3 of Form T2201 gives you the option to have the CRA adjust your previous applicable years' tax returns to include the disability amount. Be careful about using this section, though. If the CRA adjusts your returns to claim the DTC for all years for which you are eligible, you may not be able to claim other, possibly more valuable benefits for those years.
For example, you can’t include amounts you’ve paid for nursing care in a claim for the medical expense tax credit if you’ve also claimed the disability tax credit for that year. However, if you submit Form T1-ADJ you can decide which one is best for you to claim on a year-by-year basis. The decision can be complicated, so you should get professional tax advice on which form to use, and how to complete it.
Read more: 5 smart ways to use your tax refund
What other benefits can the disability tax credit provide?
Approval for the DTC can also open the door to other valuable federal, provincial or territorial financial assistance programs. These are beyond the tax credit itself.
"Let's say you're in a nursing home. You can then claim the medical expense tax credit for the portion of the expense paid for nursing care. "But that's only if you first qualify for the DTC, and you can’t claim both." Stuart says.
What other tax credits can you get?
Want more information on what you can claim? And what lines on the tax form you need to fill out? Check out the CRA's page on credits, deductions and expenses.
You may also want to think about working with a tax professional, like an accountant. They can ensure you're following the rules and getting the most from these credits.
Do you need help managing your medical expenses?
Talk with an advisor about health insurance. It’s an important way to protect your income against unexpected medical expenses – not covered by government plans. This is especially vital if you have dependents.
An advisor can look at your unique situation to help you build a customized plan that includes health insurance.
*Please note that access to additional supplement may be reduced as amounts paid for child- or attendant-care increase.
This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.