When you’re filing your taxes, taking advantage of every credit available can reduce your taxes owing or increase the return you’re eligible to receive. Are you a Canadian with a disability? You may be eligible to receive the Canadian Disability Tax Credit or another form of debt forgiveness. This would come from federally regulated programs such as Consumer Proposals.Let’s Talk
What Is the Canadian Disability Tax Credit?
Sometimes abbreviated as the DTC, the disability tax credit is a non-refundable tax credit. It can be claimed by a person with disabilities or their supporting persons to reduce the amount of income tax that they pay. Once an individual is eligible for the DTC, they can claim the disability amount on their tax return.
The DTC provides more tax equity between people with disabilities and without. It was designed as a form of relief. Many people with disabilities face higher, unavoidable costs that others do not have to pay.
In addition to the tax credit, being eligible for the DTC can also allow you to take advantage of a registered disability savings plan (RDSP), the child disability benefit, and the Canada workers benefit.
How Much Is the Canadian Disability Tax Credit?
The maximum disability amount increases every year. To find the amount you can claim on your income, look up the amount for the appropriate year on the CRA’s website. This is the maximum amount that you can claim to reduce your taxable income. Your spouse or common-law partner can also claim the tax credit.
You can also claim the Canada disability tax credit for previous years. This only applies if you were eligible for the DTC but did not claim the disability amount. You can request an adjustment for past tax returns filed up to 10 years ago to claim the DTC.
Medical Conditions That Qualify for the Disability Tax Credit
There are a number of circumstances that will make you eligible for the disability tax credit in Canada. Rather than prescribe a list of medical conditions, the criteria are as follows, if you are:
- Markedly restricted in at least one of your basic activities of daily living
- Significantly restricted in at least two ADLs
- Someone who requires life-sustaining therapy
In addition to the above, you will also have to meet the following criteria:
- You have a prolonged impairment that has affected you for at least 12 months or that is expected to last 12 months or longer
- The impairment affects you all or most of the time
How to Apply: Disability Tax Credit Form – T2201
To apply for the DTC, you will need the disability tax credit form T2201. You can now complete and submit this form digitally. Use the online tool “Submit Documents” in your CRA My Account. You can also submit a printed version by mail. While you can complete the first part of the form on your own, you will also need a medical practitioner to certify those sections and complete the second part.
When you submit the disability tax credit form, the CRA will assess your application and determine your eligibility. Their decision is based on information provided by your medical practitioner, who the CRA may contact. You will receive a notice of determination whether your application is successful or not.
An approval notice will also inform you of the years for which you are eligible to claim the disability tax credit. Generally, you do not need to submit a new Canadian disability tax credit form each year unless the CRA specifies that you should. Likewise, the CRA should notify you ahead of time when you are no longer eligible.
Once the CRA approves your form, all you have to do to gain the benefits of the disability tax credit is to claim it on your tax return.
What If Your Disability Tax Credit Form Is Denied?
If you receive a letter informing you that you’ve been denied for the Canadian disability tax credit, you may still have options if you believe you should have qualified for it.
First, review the notice of determination to see why the CRA denied your application. Then, compare it to the information in your disability tax credit form. The CRA makes its determination using the information provided by your medical practitioner.
If you disagree with the CRA’s reasoning, you can begin by calling them to talk further about your application. You can also make a written request for them to review the application. At this stage, you could also send them additional medical information if you did not include it in your last application.
Claim the Disability Tax Credit to Reduce Your Tax Bill
A growing number of workers in Canada are finding that rather than getting a cheque for a tax refund after filing their taxes, they’re left with a bill. Approximately 8% of Canadian workers now work in the gig economy in ride-sharing, food delivery, and other app-based services. Alongside Canadians who have struck out on their own to start their own businesses or work as freelancers, they don’t have payroll deductions and must manage their own income taxes and HST collection. A miscalculation can leave you with income tax debt that you did not prepare for.
In addition to gig workers and independent contractors, many Canadians are finding out that they owe taxes for the first time due to benefits like CERB and the Canada Worker Lockdown Benefit. Initially, CERB payments did not have tax withheld, leaving many Canadians surprised when they filed after receiving those payments. While new benefits like the CWLB are withheld at the source, they do not account for your total annual income. Your annual earnings may put you into a higher tax bracket. This means you may owe more on those payments than were initially withheld.
One way you can mitigate potential tax debt is by claiming all of the credits you are able to. Canadians with disabilities can use the disability tax credit to offset their amounts owing. It will help them to avoid a debt burden by claiming extra expenses related to their disability.
Taxes and Debt: What Happens If You Owe the CRA Money?
If you’re unable to work or you have extra expenses because of your disability, tax time can be a difficult one. There are several reasons you can wind up owing the Canada Revenue Agency. One reason is earning income as a gig worker. Another is having to repay CERB payments that you were not eligible to receive.
For example, you may have received a CERB repayment letter if you received the Canada Emergency Response Benefit, but you were not eligible for it. CERB payments were released to everyone who applied, even if they were not eligible. Many people who did not meet the income requirements from the previous 12 months wound up having to repay that benefit. If you were already receiving disability payments, the federal government did issue a one-time, enhanced $600 GST payment to those already registered for the disability tax credit, but you generally would not have been eligible for CERB.
Owing taxes or having to repay the full amount can be arduous. There are only a few options for Canadian tax debt relief. However, there are steps you can take to deal with tax debt you cannot afford to repay.
Tax Debt Relief Options in Canada
When you find yourself in a situation where you owe tax debt that you can’t afford to repay, you may need to talk to debt professionals in Canada. There are ways you can work with the CRA on tax debt, but for the most part, you will have to pay.
There is a program for CRA debt forgiveness, but it only forgives interest and late payments for those who qualify, not the principal amount that you owe. The CRA cannot forgive taxes that you owe on its own, no matter the circumstances, and they may even encourage you to take out a loan so that you can pay them.
However, you do have other options besides going into debt. CRA income tax debt is not exempt from bankruptcy or consumer proposals. These are insolvency processes that will discharge unsecured debts, including tax debt, credit cards, payday loans, and others. If you are unable to pay the CRA what you owe, they may be worth considering.
To begin, give us a call and book a free consultation for dealing with your tax debt. A Licensed Insolvency Trustee with David Sklar & Associates will review your tax debts and your overall financial situation to advise you on your options moving forward.