The disability tax credit (DTC) is a non-refundable tax credit used to reduce the income tax you pay. It’s available for people with a severe and prolonged physical or mental impairment, subject to approval by the Canada Revenue Agency (CRA). It’s meant to help even out the tax burden by allowing some relief for disability costs, since these are unavoidable additional expenses that other taxpayers don’t have to face.
For 2016, the federal non-refundable DTC for an adult is $8,001. If the person with the disability is a child under 18, there is an additional supplement of $4,667, for a total DTC of $12,668.
Stuart Dollar, Sun Life Financial’s Director of Tax and Insurance Planning, explains that this amount is multiplied by the lowest federal plus provincial or territorial tax rates to determine the actual dollar benefit. “Therefore in Ontario, the tax credit of 20.05% (15% federal plus 5.05% provincial) for a disabled child could be worth as much as $2,539.93,” he says.
Where a child or other dependant doesn’t have any taxable income, a parent or other relative can claim the DTC under certain conditions. (See Line 318 – Disability amount transferred from a dependant on the CRA website for more information.)
How to qualify for the DTC
To qualify for the DTC, you must submit the Form T2201, Disability Tax Credit Certificate, and the CRA must approve your application before you file your income tax return for the year you’re claiming the credit. The disabled person (or a family member) completes Part A of the form and, depending on the nature of the disability, a medical doctor or other health practitioner such as an audiologist, optometrist or psychologist fills out Part B.
While the lengthy form may at first appear intimidating, Dollar sees no reason why DTC claimants should have to pay hefty fees to consultants to prepare their application. “Read through it carefully and if you are still confused, there is a 1-800 number right on the form to call for help from CRA,” he says.
Based on the circumstances of each case, the CRA may approve the DTC certificate indefinitely or for a shorter, specified period. Alan Whitton, Ottawa author of the Canadian Personal Finance Blog, applied for the DTC on behalf of his son. “Rhys is high-functioning on the autism spectrum, so they’ve only given us a DTC for 10 years and he will have to be re-diagnosed in four or five more years,” Whitton says.
Depending on the onset of the disability, you may use the credit both in the current year and going back as far as 10 years, resulting in sizeable retroactive tax refunds. To have the disability tax credit back-dated, you must file a form T1Adj for each previous tax year in which the disabled individual qualifies. In Whitton’s case, he was able to get a refund back to the date Rhys was born, because autism is considered to be a “from-birth” brain injury.
Approval for the DTC can also open the door to other valuable federal, provincial or territorial financial assistance programs beyond the tax credit itself. For example, Dollar says, “If you are in a nursing home, you can claim the medical expense tax credit for the portion of the expense paid for nursing care, but only if you first qualify for the DTC.”