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People with physical and mental disabilities often face serious financial challenges related to earning limitations or direct out-of-pocket expenses.

Let’s look at what government support is available. Unless noted otherwise, all figures are for 2014.

Direct financial assistance

CPP/QPP

This disability benefit is available to people who’ve made recent CPP/QPP premium payments while working. The disability must be both:

  • severe (a person is incapable of regularly pursuing any substantially gainful occupation); and
  • prolonged (long-term and of indefinite duration or is likely to result in death).

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The maximum monthly disability benefit a qualifying person can receive is $1,236, plus a maximum monthly benefit of $231 for each dependent child the disabled contributor has. These are related but separate applications, and must be made using Service Canada forms.

Child disability benefit

Based on family net income, the federal government will pay as much as $221 per child each month to families with children qualifying for the disability credit (see below). To qualify, tax form T2201 must be completed and approved by CRA.

Provincial support programs

Some provinces have stand alone disability support programs, while others recognize disability as a special qualification within the overall social support system. Generally, a licensed physician using provincially prescribed criteria and forms must certify the disability.

Entitlement is reduced or eliminated where earnings or assets exceed regulated thresholds, though some provinces will disregard assets held in a discretionary trust for the disabled person.

Provincial approaches vary in terms of service offerings, cost reimbursements, rates for family size and composition, and direct financial assistance. On a single person basis, maximum annual direct support ranges from about $10,000 to $20,000.

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Individual income tax relief

Tax measures commonly available to assist persons with disabilities fall into three categories.

  1. Deductions: Qualifying items reduce the taxable income upon which relevant federal and provincial tax rates are applied.
  2. Non-refundable tax credits: Once that tax liability is calculated, these credits directly reduce that liability but cannot take it below zero. The qualifying amount is multiplied by the applicable federal or provincial rate (usually the lowest bracket rate) to calculate the credit value. The federal rate is 15%.
  3. Refundable tax credits: This results in the amount payable to the individual, even when tax liability has been reduced to zero.

The following is an outline of the key items and their potential dollar values (often income-dependent), though it does not cover all possibilities. For a comprehensive view, including detailed qualification criteria, consult Guide RC4064, “Medical and Disability-Related Information,” available at CRA’s website.

Disability credit

This is a non-refundable credit, available both federally and provincially. Using tax form T2201, the disability must be certified by a qualified medical practitioner as being both severe (i.e., blindness, conditions requiring life-sustaining therapy, a marked restriction in speaking or hearing, walking, feeding, dressing, elimination or a marked restriction in everyday mental functions) and prolonged (lasting, or expected to last, continuously for at least 12 months).

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The basic federal amount is $7,766. A supplement worth as much as $4,530 may be available for children under age 18, though the value is reduced if certain attendant care expenses are claimed for the child.

Taken together, the maximum possible federal credit is $1,844, or 15% multiplied by the sum of $7,766 and $4,530. The maximum basic credit at the provincial level ranges between $375 and $1,372.

Disability supports deduction

A disabled individual may deduct qualifying, out-of-pocket expenses incurred to work, go to school or conduct grant-supported research. The individual may not deduct amounts already claimed under the medical expense credit (whether claimed by the individual personally or on his behalf as a dependant), or amounts already reimbursed by health insurance plans or through other non-taxable payments. Generally, the deduction cannot exceed the person’s earned income for the year, calculated using CRA Form T929.

Medical expense credit

An individual may claim eligible medical expenses, whether incurred in Canada or elsewhere, that’ll be paid in any 12-month period.

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Special rules apply to attendant care expenses, and whether the care was received at home or in a facility. This is a non-refundable tax credit, equal to expenses that exceed the lesser of:

  • $2,171, (indexed annually); or
  • 3% of the disabled individual’s net income.

This number ranges between $1,637 and $2,298 in provincial formulas. Eligible expenditures can be claimed either under this medical expense credit calculation or as a disability support deduction, but not both.

Accordingly, you should do a test calculation to determine which of the two yields the best net tax result.

by Doug Carroll, JD, LLM (Tax), CFP, TEP, vice-president, Tax and Estate Planning, Invesco Canada.

Originally published in Advisor's Edge Report

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