The disability tax credit (DTC) reduces the tax payable in a year for those who are eligible, and it’s the cornerstone of several tax measures set out by the Income Tax Act. Those include the registered disability savings plan (RDSP) and qualified disability trusts (QDTs), as well as the ability to roll an RRSP to a dependent child with a disability.
Overall, eligibility for the DTC opens up many types of plans for people with disabilities, but it also makes financial planning more complex.
Before making any recommendations to disabled people, you must always check whether or not the person you’re helping is eligible for the DTC. Apply using Form T2201 – Disability Tax Credit Certificate.
Eligibility for the DTC
An applicant must meet several criteria. First, he or she must have one or several severe and prolonged disabilities that impair mental or physical functions and are expected to last for at least 12 months.
The effects of the disability must also markedly restrict a basic activity of daily living for the person. Basic activities of daily living are:
- feeding and dressing;
- performing the mental functions necessary for everyday life (i.e. using memory, problem solving, goal-setting, judgement, and adaptive functioning);
- hearing; and
- eliminating (having bowel and bladder functions).
“Markedly restrict” means when a person takes an inordinate amount of time to perform a basic activity of daily living, even though they benefit from therapy and the use of appropriate devices and medication. A person could also be markedly restricted if they’re almost or totally blind.
If the person has more than one disability, the cumulative effect of the disabilities is considered when determining whether or not the person takes longer to do the basic activities of daily living at least 90% of the time.
For example, a person with multiple sclerosis suffers continually from fatigue, depression and balance problems, for instance. Each of these limitations does not markedly restrict the execution of a basic activity of daily living, but, taken together, they may have the same cumulative effect as the inability to do at least one of the basic daily activities. If that’s the case, such a person would be eligible for the DTC.
Also consider that if a person who benefits from therapeutic care does not qualify for the credit based on the fact that she does not take an inordinate amount to do a basic activity, she might still be considered markedly restricted if the therapy is needed to support a vital function. In addition, the therapy must be administered at least three times a week for a total average of least 14 hours a week. This therapy reasonably would not have beneficial effects on people who do not have this disability. Examples of life-sustaining therapy include chest physiotherapy to facilitate breathing and kidney dialysis to filter blood insulin therapy to treat Type 1 diabetes in a child who cannot independently adjust the insulin dosage.
On Form T2201, a medical doctor or nurse practitioner must certify the effects of the disability or disabilities. Certification by other specialists could be accepted if the disability falls within their field of expertise. For example, a disability that affects an individual’s ability to walk may be certified by an occupational therapist or physiotherapist.
Then, once the form has been filled out by the person (or legal representative) and the authorized medical practitioner, it must be sent to the Disability Tax Credit Unit of the applicable tax centre. It can be sent at any time during the year.
Analysis of the application may take up to six months, and a notice of determination will be sent to inform the applicant of CRA’s decision. (For more on how to claim the disability amount once the DTC application is approved, click here.)
The Minister may at any time re-examine a person’s eligibility for the DTC and, as a result, require that the person resubmit Form T2201, along with a new assessment from a medical practitioner.
A taxpayer deemed ineligible – either from the outset or due to re-evaluation – can file an objection using Form T400A, no later than one year after the deadline for filing income tax returns or 90 days after the date the notice of assessment or determination was sent. For example, a taxpayer who applies for the DTC in May 2017 using Form T2201 and who is deemed ineligible for the credit by the CRA in October 2017 will have until April 30, 2019 to submit a notice of objection, or one year after the filing deadline for the 2017 tax year.
T1 adjustment request
A person who was eligible for the DTC in previous years but who didn’t benefit from the credit during those years may request a retroactive adjustment for up to 10 years.
To request an adjustment, complete Form T1-ADJ. Alternatively, the taxpayer can send a signed letter explaining the details of the requested change along with Form T2201 or the notice of determination.
This person could also take advantage of other tax benefits for past years, such as the RDSP (from 2008 only, as that was the year it launched). For this to be possible, the person’s medical practitioner must indicate on Form T2201 in what year the DTC-eligible person became markedly restricted in his basic activities of daily living (for every disability for which this professional is authorized to certify information).
Basic amount for 2017
The DTC is a non-refundable tax credit calculated at 15% of the amount. The DTC basic amount for eligible individuals for 2017 is $8,113. If the application is for a disabled child under the age of 18, a supplemental amount of $4,733 is added to the basic amount and reduced by any childcare expenses claimed, for a maximum total of $12,846. An equivalent provincial credit is also available.
David Truong, Pl.fin, CFP, CIWM, M.Fisc, works as a senior consultant, expertise centre, at National Bank Private Banking 1859. He also teaches at McGill University.