When filing your tax return, it’s to your advantage to claim every tax credit you can. In doing so, you can slash your tax bill and possibly take home a hefty refund. If you’re a Canadian with a disability, you may be eligible for the Canadian disability tax credit. It’s a credit that many people overlook, but one that can lead to substantial savings during tax season.
In this guide, we’ll explore how the disability tax credit works, what it takes to qualify for it, and how to apply. We’ll also explain how it can help offset the tax debt you may owe to the Canada Revenue Agency.Let’s Talk
What is the disability tax credit?
The disability tax credit (DTC) is a non-refundable tax credit that helps individuals with physical or mental impairments reduce the amount of income tax they pay. Individuals supporting someone with a disability or the spouse of those with a disability can also qualify for the credit. The credit is available at both the federal and provincial levels.
The DTC is designed to equalize the tax treatment between those living with disabilities and those without. The former face more expenses related to medical treatment, food, housing, transportation, personal assistance services, etc. They can obtain much-needed financial relief by claiming the DTC on their tax return.
In addition, qualifying for the DTC can also allow individuals to take advantage of other complementary government programs, which include:
- Registered Disability Savings Plan (RDSP)
- Child disability benefit
- Canada worker’s benefit disability supplement
- Multigenerational home renovation tax credit.
How much can you receive from the disability tax credit?
The amount you can receive under the DTC at the federal level is indexed to inflation, so it changes every year. For the 2023 tax year, you can claim $8,986. You can also transfer this amount to an individual who acts as your caregiver or to your spouse. This is the base amount and is available to everyone who qualifies.
To determine the value of the credit in dollars, multiply this amount by the lowest federal rate, which is currently 15%. The credit value in dollars is $1,347.90 (15% tax bracket x $8,986 base federal amount).
Remember that the above calculation shows the maximum amount available through the DTC. In reality, calculating the dollar value of the credit can be very challenging. The actual amount you’ll receive will depend on various factors, including your age, income, and the province you live in.
If you’re the parent of a child under 18, you may be eligible for the supplemental amount under the DTC. The maximum supplemental amount for 2023 is $5,242.
Note: Each province and territory have their unique base and supplemental amounts, which you can claim on your tax return as you would with the federal portion.
You can claim the DTC in the current tax year or carry it back for up to 10 years in the past so long as you’re eligible for the credit. To find the amount you can claim against your income, look up the appropriate year on the Canada Revenue Agency’s (CRA) website.
The ability to retroactively claim the DTC over many years makes it particularly valuable. Adjusting your prior tax returns (using form T1-ADJ) to add the credit can result in a substantial financial windfall.
How to qualify for the disability tax credit
There are many medical conditions that can make you eligible for the DTC credit, but there are very strict restrictions as well. Unfortunately, there’s no master list of approved physical and mental disabilities, so you’re better off becoming familiar with the general criteria.
You may qualify for the DTC if you have a severe and prolonged impairment certified by a medical professional. Your ailment must prevent you from engaging in basic day-to-day activities, such as eating, dressing yourself, walking, speaking, and hearing.
In addition, you must also meet the following criteria:
- Your disability has affected you to perform basic activities for at least 12 months or is expected to last at least 12 months
- Your disability affects you all or most of the time (generally at least 90%)
- Your disability interferes with your ability to perform basic activities even with the aid of medication, therapy, and medical devices
If your disability requires you to undergo life-sustaining therapy that takes substantial time away from daily activities, you also stand a good chance of getting approved for the DTC.
How to apply for the disability tax credit
To apply for the DTC, you’ll need to complete Form T2201. You can mail this form to the CRA or submit it online using the “Submit Documents” function in your CRA My Account.
The first section of the form (Part A) is for you to fill out with your personal information. Your medical practitioner must complete the second section (Part B). The latter is the most critical, as the medical expert must prove that your disability is severe and hampers your ability to engage in day-to-day activities.
Upon receiving your application, the CRA will evaluate the details to determine your eligibility for the DTC. They’ll base their decision primarily on information provided by your medical practitioner, whom they may contact.
After some time, you’ll receive a notice of determination stating whether your application is successful. The notice will also inform you of the years you can claim the DTC. Generally, you do not need to submit a new Canadian disability tax credit form each year unless the CRA requests that you do so. Likewise, the CRA will notify you when you’re no longer eligible.
Once the CRA approves your form, all you have to do to reap the benefits of the DTC is to claim it on your tax return.
The DTC has a reputation for being notoriously difficult to get approved for. The eligibility requirements are tough to meet, and the application process is complex. As a result, many don’t even bother trying, thus losing out on valuable tax savings.
If you’re overwhelmed with the paperwork, consider hiring a disability tax credit consultant to assist you.
What if your application is denied?
If the CRA has rejected your DTC application, you may still have options if you believe you should have qualified for it.
Review the notice of determination to see why the CRA denied your application. Then, compare it to the information in your T2201 form to see if there are any errors or inconsistencies.
If you disagree with the CRA’s decision, contact them to talk further about your application. You can also make a written request to have your application reviewed again. To strengthen your case, ensure you send any additional medical information previously missed.
Why the disability tax credit matters when you owe money to the CRA
As mentioned, The DTC can help you relieve financial pressure from your budget if you face high living costs due to your disability. However, that’s not the only time it comes in handy.
Suppose you cannot work a regular job, and the government assistance programs account for much of your income. In that case, tax time can be a very challenging time financially.
You may discover that you owe money to the CRA instead of receiving a refund. For example, you could get hit with a tax bill because you earned income as a gig worker (which may have been your only option due to your impairment) and failed to remit the correct percentage in taxes and source deductions to the CRA. Similarly, an extra income source you collected during the year may have pushed you into a higher tax bracket, which could result in you underestimating your tax liability.
You may also face a tax bill if you need to repay government benefits you were not eligible to receive in the first place. Or you may owe the CRA a lump sum due to receiving payments from programs like CERB, in which no taxes were withheld.
One way to reduce potential tax debt is by claiming all the credits you can, including the DTC. Maximizing your deductions can help you avoid a nasty surprise during tax season.
Your options for tax debt relief when the disability tax credit isn’t enough
Being stuck with a tax bill when you’re strapped for cash can be stressful, especially as the CRA possesses broad powers to collect the money you owe to them. While helpful, tax credits like the DTC may not always provide the financial relief you need.
However, there are steps you can take to deal with tax debt you cannot afford to repay. If you’ve found yourself in such a situation, consider speaking with qualified debt professionals in Canada to learn about your options.
There are ways you can work with the CRA on tax debt, but for the most part, you’ll have to pay. While there’s a program available for CRA debt forgiveness, it only forgives interest and late payments. You must still pay the principal in full. The CRA cannot write off taxes you owe, no matter the circumstances, and 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 legal processes will discharge unsecured debts, including tax debt, credit cards, and payday loans. They may be worth considering if you cannot pay the CRA.
Call us and book a free consultation for dealing with your tax debt. A Licensed Insolvency Trustee with David Sklar & Associates will review your financial situation to advise you on how to move forward.