Taking Credit Where Credit Is Due: The Disability Tax Credit

By: 

Zoë Macmillan

Recently, a number of individuals have come to TAPS with forms from private companies offering to help them apply for the federal disability tax credit. These companies suggest large financial returns. However, they are often not as transparent about the percentage they charge on any monies the disabled person qualifies for. This article discusses the eligibility criteria for the disability tax credit, the benefits of qualifying for it, and how to apply without resorting to the help of private, for-profit companies.

 

What Is the DTC?

The disability tax credit (DTC) is a non-refundable credit that helps persons with disabilities or their supporting person reduce the amount of income tax they may have to pay. The purpose of the DTC is to provide for greater tax equity by allowing some relief for disability costs. If eligible, an individual or their support person can claim a non-refundable credit totalling approximately $1500 per year. The application and approval can be retroactive to the onset of disability. Tax returns can be refiled for up to ten years, which may trigger further refund. The DTC is not permanent and may be reviewed, particularly in cases of episodic conditions or ones likely to improve.

 

How to Apply

Unlike other credits, individuals must first apply to Canada Revenue Agency (CRA) before claiming the DTC. The application process itself is quite simple. Form T2201, Disability Tax Credit Certificate, has two parts. Part A asks basic personal information of the applicant. More detailed information is required of those seeking to claim the amount on behalf of a disabled individual for whom they provide support. Part B must be completed by a medical practitioner. 

 

Eligibility Criteria

A qualified practitioner needs to certify on the DTC Certificate that the applicant has a severe and prolonged impairment, as defined in the Income Tax Act.

Prolonged: The impairment has lasted, or is expected to last, a continuous period of at least 12 months.

Severe:

The applicant:

  • is blind, or
  • receives life-sustaining therapy, or
  • is markedly restricted in one basic activity of daily living, where all or substantially all of the time they are unable or it takes 3 times as long as a non-disabled person to perform, or
  • is significantly restricted in two or more basic activities of daily living, where restrictions present all of the time or most of the time, and the cumulative effect of the restriction is equivalent to being markedly restricted in one basic activity.

“Basic activities” are vision, speaking, hearing, walking, bowel or bladder function, feeding, dressing, and mental functions necessary for everyday life. A person’s ability to perform these activities is assessed with the applicant’s use of assistive devices, therapy, and medication. This means, for example, if a person using a cane walks as quickly as a non-disabled person, then their walking ability is not considered restricted. Similarly, if a person functions restriction-free so long as they take their medication, they likely will not qualify.  

 

Challenges to Qualifying

Just because an individual is eligible for provincial or federal disability benefits does not mean their DTC application will be approved. Qualifying for the DTC may be challenging depending on the nature of an individual’s disability, particularly when their ability to perform activities is evaluated with the use of devices and therapies. Unsurprisingly, a denial may be bewildering for those whose disabilities are deemed severe enough to qualify for Person With Disabilities or Canada Pension Plan Disability benefits. 

A successful application truly depends on the ability of the applicant’s doctor to detail why their patient satisfies the criteria. Of critical importance is the practitioner’s understanding and ability to explain how their patient’s impairment markedly or significantly restricts their ability to perform activities. This requires not only an understanding of the legislative definitions, but a thorough appreciation of the applicant’s abilities and restrictions.  If CRA is not convinced an applicant meets the DTC eligibility requirements, the doctor may be sent a questionnaire seeking additional, detailed information.

 

Benefits of the DTC

Likely the biggest benefit of DTC eligibility is the opportunity to establish a Registered Disability Savings Plan (RDSP). RDSPs allow disabled individuals to save for long-term financial security, and have added incentives such as government grants which match contributions up to $70,000, and government bonds of $1,000 per year for low income individuals. As well, PWD or income assistance benefits are not affected by any RDSP savings or withdrawals. RDSPs are considered exempt assets and any income withdrawn is treated as exempt unearned income.

 

How Can TAPS & FDAP Help?

With TAPS’ Federal Disability Advocacy Project (FDAP), the advocate provides clients with general information about the DTC and can further explore whether the DTC is an option. Most importantly, the FDAP advocate is able to help clients through the application process itself. For example, the advocate can draft letters to the client’s practitioner outlining not only the DTC eligibility requirements, but also providing detailed information about their patient’s challenges in performing basic daily activities. Clients are also encouraged to review the completed certificate with the advocate before submitting it, to ensure it is the strongest possible application.

If a client is approved for the DTC, the advocate can assist by corresponding with CRA to request a reassessment of past tax years. If the DTC application is denied or revoked, the advocate can assist with an appeal. This may involve filing a Notice of Objection and providing additional information in support of the application, such as medical letters of support. The advocate can also assist with readjustments to a client’s DTC eligibility, for example, requesting a change to the date of onset of the disability if new medical information supports the claim.

Unlike private, for-profit organizations, TAPS does not charge clients for these services. Many “disability benefit firms”, also known as disability tax credit promoters, offer help with DTC applications, and may even guarantee success. However, these services typically come at a large cost. Currently, legislation is being drafted which will set the maximum fee that DTC promoters can charge for helping prepare a claim.  The goal is to protect often vulnerable individuals from such unscrupulous practices.