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 their provincial disability support program. 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?
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).
It's meant to help even out the tax burden by allowing some relief for disability costs.
How much can you claim for the disability tax credit?
For 2020, the federal non-refundable DTC for an adult is $8,416. If the person with the disability is a child under 18, they can get an additional supplement* of up to $5,003. That can add up to a total DTC of $13,416.
Stuart Dollar, Sun Life's Director of Tax and Insurance Planning, explains that you can multiply this amount by the lowest federal and provincial or territorial tax rates to determine the actual dollar benefit. "In Ontario, the tax credit of 20.05% (15% federal plus 5.05% provincial) for a disabled child could be worth as much as $2,683," 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 318 - 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 CRA must also approve your application before you file your taxes. 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 (such as an audiologist, optometrist or psychologist) fills out Part B.
The form may at first appear lengthy and intimidating. But Dollar sees no reason why DTC claimants should have to pay high fees to consultants to prepare their application. "Read through it carefully," he says. "And if you are still confused, there's a 1-800 number right on the form to call for help from CRA."
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."
How many years back can you claim the disability tax credit?
Depending on the onset of the disability, you may use the credit both in the current year and going back as far as 10 years. This may result in sizeable tax refunds.
How do you have the disability tax credit backdated? You must file a T1AdJ form for each previous tax year in which the disabled individual qualifies. 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.
What else 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 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," Dollar says. "But that's only if you first qualify for the DTC."
- When it's time to move your parent into a nursing home
- Are you entitled to a tax refund for your medical expenses?
Learn more about what tax credits you can 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.
* Please note that access to additional supplement may be reduced as amounts paid for child- or attendant-care increase.