The Disability Tax Credit (DTC) is one of the most beneficial tax credits available to Canadian's who suffer from one of many diagnosed disabilities. Unfortunately, many Canadians that would qualify are not currently benefitting from it. Canada Revenue Agency (CRA’s) own estimates indicate that at least 1.1 million Canadians are eligible for the credit, but only 620,000 claimed it in 2012-13. Some of the reason for this is the stigma around the word 'disability' and a lack of understanding for what qualifies for the DTC.
Individuals with various physical or mental impairments can claim the federal disability amount of $7,899 (2015) on their tax returns. For people under 18, there is an additional supplement of $4,607 (2015). To qualify, a form T2201 Disability Tax Credit must be completed by a qualified medical practitioner, i.e. doctor, psychologist, occupational therapist, physiotherapist, or speech/language pathologist. In practice, I have encountered that medical practitioners are often reluctant to sign the form for people with a mental illness, simply because they are not aware of what qualifies for the DTC under tax law. It is important that you understand what does qualify, so you can talk to your family doctor.
Eligibility requirements for the DTC include those whom due to the effects of a severe and prolonged mental or physical impairment are markedly restricted in their ability to perform a basic activity of daily living, this includes mental functions necessary for everyday life. Mental functions for everyday life include:
• adaptive functioning (i.e., abilities related to self-care, health and safety, abilities to initiate and respond to social interactions, and common, simple transactions);
• memory (i.e., the ability to remember simple instructions, basic personal information such as name and address, or material of importance and interest); and
• problem-solving, goal-setting, and judgment, taken together (i.e., the ability to solve problems, set and keep goals, and make appropriate decisions and judgments).
Problem-solving, goal-setting, and judgement is the most important aspect for the medical practitioner to understand in determining whether your loved ones qualify for the DTC. Manly people who suffer with mental illness have such difficulties.
If possible, attend the appointment with your loved one or friend to help explain how the nature of their illness involves difficulties with mental functions. If you don’t agree with what the practitioner has written, you can choose to take it to another practitioner or seek professional help from your wealth advisory team.
Steps to Apply for the Disability Tax Credit (DTC):
1. Download the application form – T2201 Disability Tax Credit Certificate at https://www.cra-arc.gc.ca/E/pbg/tf/t2201/README.html
2. Have your doctor, psychiatrist, psychologist or any of the professionals listed previously complete the medical certification. Make certain that they understand that under tax law a mental impairment that markedly restricts the ability to perform an activity of basic living includes mental functions of problem-solving, goal-setting and judgement.
To be eligible the answers have to be:
a. Is your patient markedly restricted in performing the mental functions necessary for everyday life, as described above? YES
b. Has your patient’s marked restriction in basic activities of daily living – mental functions, lasted, or is it expected to last, for a continuous period of at least 12 months? YES
c. Is the impairment likely to improve sufficiently such that the patient may no longer be markedly restricted in activities of daily living – mental functions? NO
Note: On the form, the medical practitioner’s indicate the year the impairment started. Ensure they indicate the appropriate year the impairment started because the individual can refile prior year tax returns up to 10 years with the DTC. This can result in substantial tax refunds for the individual.
3. Another professional or family member can also attach a letter, which describes in your own words, the impact your illness has on your ability to perform activities of daily living the strengthen the case.
4. Take the signed T2201 form to a Canada Revenue Agency Tax Centre – List of locations or call 1-(800) 622-6232 for your nearest location.
After you submit the form, it takes 6-8 weeks on average to get a response back from the CRA. If the application is approved, consider refiling prior tax returns up to 10 years for all years the T2201 form indicates the individual qualified for the DTC. This can result in substantial tax refunds. If the application was rejected, CRA will provide why the DTC was turned down. Don’t give up! You can write a letter to your local Canada Revenue Agency Tax Centre. It has been noted that over 94% of appeals are approved on review.
Once the Disability Tax Credit is approved, consider the benefits of a Registered Disability Savings Plan (RDSP).
I hope this has helped you understand if you or your loved ones may qualify for the Disability Tax Credit, as well as been informed of how the application process works. There are more intricacies of the DTC that may be relevant to you, so please consult with your Wealth Advisory team to discuss further details.
- Andrew Brydon, CPA, CA
This publication is provided for general information purposes only and does not represent professional advice. While the information contained herein is believed to be accurate, no action should be taken based on this alone. Each individual’s situation depends on personal facts and circumstances. Please consult your wealth advisory team regarding your personal situation.