The disability tax credit (DTC) is a non-refundable tax credit that helps people with impairments, or their supporting family member, reduce the amount of income tax they may have to pay. If you have a severe and prolonged impairment, you may apply for the credit. If you are approved, you may claim the credit at tax time.
In this blog, we will explain the eligibility criteria, the application process, the amount of the credit, and some examples of how to claim it.
Eligibility Criteria for Disability tax Credit
To be eligible for the DTC, you must meet the following conditions:
You have a severe and prolonged impairment in physical or mental functions that has lasted, or is expected to last, for at least 12 months.
The impairment affects your ability to perform one or more of the basic activities of daily living, such as speaking, hearing, walking, feeding, dressing, eliminating, or mental functions necessary for everyday life.
You need, and have received, extensive therapy (other than medication) to sustain a vital function, such as breathing or feeding, at least three times per week for a total of at least 14 hours per week.
You have a valid certificate from a medical practitioner that confirms the effects of your impairment on your daily life.
Application Process for Disability Tax Credit
To apply for the DTC, you need to fill out Form T2201, Disability Tax Credit Certificate, and send it to the Canada Revenue Agency (CRA). The form has two parts:
Part A: You fill out this part with your personal information and identify the supporting family member who may claim the credit on your behalf, if applicable.
Part B: Your medical practitioner fills out this part with information about your impairment, its effects, and the duration of the impairment.
You can complete Part A of the form online using the new digital form1. Alternatively, you can print the form and fill it out by hand. You need to get Part B completed and signed by a qualified medical practitioner, such as a doctor, nurse practitioner, optometrist, audiologist, occupational therapist, physiotherapist, psychologist, or speech-language pathologist. You may have to pay a fee for this service, which you can claim as a medical expense on your tax return.
Once you have completed the form, you can mail it to the CRA or submit it online through My Account1. The CRA will review your application and send you a notice of determination to inform you of the decision. If you are approved, you can claim the credit on your tax return for the current year and up to 10 previous years. If you are not approved, you can request a reassessment or file an objection.
Amount of the Disability Tax Credit
The amount of the DTC depends on your age and income. For the 2022 tax year, the base disability amount is $8,870 for those 18 and older, and $14,044 (including supplement for children $5,174) for those 17 and younger. These amounts are indexed to inflation and may change every year.
The DTC is a non-refundable tax credit, which means it can only reduce your income tax to zero. It cannot generate a refund or be carried forward to future years. However, if you do not need the full disability amount to reduce your income tax, you may transfer some or all of the unused amount to a supporting family member, such as a spouse, common-law partner, parent, grandparent, child, grandchild, sibling, aunt, uncle, niece, or nephew.
To claim the DTC on your tax return, you need to enter the disability amount on the appropriate line, depending on whether you are claiming for yourself, a dependent, or a spouse or common-law partner. You can find more information on how to claim the DTC on the CRA website.
Examples of How to Claim the DTC
Here are some examples of how different people may claim the DTC, based on their age, income, and family situation. These examples are for illustration purposes only and do not reflect the actual tax rates and calculations for 2024.
Example 1:
Alice is 25 years old and has a severe hearing impairment. She works as a graphic designer and earns $50,000 in 2022. She lives alone and has no dependents. She has a valid DTC certificate from her audiologist.
Alice can claim the base disability amount of $8,870 on line 31600 of her tax return. This reduces her taxable income by $8,870, which lowers her federal income tax by $1,331.50 (assuming a 15% tax rate). She also saves on provincial income tax, depending on her province of residence.
Example 2:
Bob is 40 years old and has a severe and prolonged mental impairment. He is unable to work and with his spouse, Carol, who earns $60,000 as a teacher. They have no children. Bob has a valid DTC certificate from his psychologist.
Bob can claim the base disability amount of $8,870 on line 31600 of his tax return. However, since his income is low, he does not need the full amount to reduce his income tax to zero. He can transfer the unused amount of $8,870 to his spouse, Carol, who can claim it on line 32600 of her tax return. This reduces Carol’s taxable income by $8,870, which lowers her federal income tax by $1,331.50 (assuming a 15% tax rate). She also saves on provincial income tax, depending on her province of residence.
Example 3:
Chloe is 10 years old and has a severe and prolonged physical impairment. She needs extensive therapy to sustain her vital functions, which costs $10,000 in 2022. She lives with her parents, David and Emma, who earn $80,000 and $40,000 respectively. They have no other children. Chloe has a valid DTC certificate from her physiotherapist.
Chloe can claim the disability amount of $14,044 on line 31600 of her tax return. However, since she is a minor and has no income, she cannot use the credit to reduce her income tax. She can transfer the full amount of $14,044 to one of her parents, who can claim it on line 31800 of their tax return. David and Emma can decide who will claim the credit, depending on their tax situation. The credit reduces the parent’s taxable income by $14,044, which lowers their federal income tax by $2,106.60 (assuming a 15% tax rate). They also save on provincial income tax, depending on their province of residence.
In addition, Chloe’s parents can claim the therapy expenses of $10,000 as a medical expense on lines 33099 or 33199 of their tax return. They can also claim the supplement for children with disabilities of $5,174 on line 31800 of their tax return, if they meet the income threshold.
Conclusion
The disability tax credit is a valuable tax benefit for people with impairments, or their supporting family member, that can help them offset some of the extra costs related to the impairment. If you think you may be eligible for the DTC, you should apply as soon as possible and consult a tax professional for guidance. You may also want to check out other benefits and programs for people with disabilities, such as the registered disability savings plan (RDSP), the child disability benefit (CDB), and the Canada caregiver credit (CCC). This article is meant for an educational purpose, seek professional advice before taking any decision.
We at Presyz Accounting can help you to file your taxes and tax planning, get in touch and ensure the quick and reliable tax service.
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