Complete guide to Disability Credit Tax in Canada

Taking care of a loved one who is battling any kind of physical or mental disability can be a big challenge. It can be overwhelming emotionally and can also become difficult financially. But if you are a Canadian resident, you may be eligible for financial help from the government. In this article we will find out all the information you might need about Disability Credit Tax in Canada, why is it important, and how you can make use of it.

Disability Credit Tax in Canada- the basics

In Canada, the Disability Tax Credit (DTC) is a non-refundable tax credit aimed at assisting individuals with disabilities or their caregivers in reducing the income tax they might be obligated to pay. The purpose of the DTC is to provide financial support for those who have a prolonged impairment in physical or mental functions, which markedly restricts their ability to perform one or more basic activities of daily living, even with the help of technological aids or medication.

To be eligible for the Disability Tax Credit, an individual must have their impairment certified by a qualified medical practitioner, who completes the Disability Tax Credit Certificate (Form T2201). The completed form is then submitted to the Canada Revenue Agency (CRA) for approval.

Upon approval, the individual with a disability has the option to apply the Disability Tax Credit on their income tax return. Alternatively, this credit can be transferred to a supporting person, including a spouse, common-law partner, parent, grandparent, child, grandchild, sibling, aunt, uncle, nephew, or niece.

To be eligible –

• You need to be a Canadian citizen or a Permanent Resident of Canada.
• A qualified medical practitioner must certify that you have a severe and prolonged impairment or marked restriction in at least one specified category of daily activities.
• Alternatively, a medical practitioner must certify that you experience significant limitations in two or more categories of daily activities.
• If you receive life-sustaining therapy to support vital bodily functions, you may also be eligible for the DTC.

Establishment of Disability Credit Tax

The Government had instituted the Disability Tax Credit program managed by CRA. It helped about 22% of the Canadians living with disabilities and their families. Therefore, the CRA is working towards reducing the financial burden which patients might incur because of those impairments that include medications, specialized equipment, and personal supports.

The recent findings of CSD indicate that there are 6.2 million Canadians who have limitations in performing day-to-day activities due to any form of disability. The CRA is devoted to offer monetary support to people with varied difficulties stemming from living with a disability and its consequences on the family lives as well through the Disability Tax Credit program.

Disability Credit Tax eligibility

Eligibility for the Disability Tax Credit (DTC) in Canada is determined based on the extent to which an individual's physical or mental impairment affects their ability to perform one or more basic activities of daily living, even with the assistance of technological aids or medication. Here are key criteria for DTC eligibility –

• Prolonged Impairment

The impairment must be prolonged, meaning it is expected to last for a continuous period of at least 12 months. The following is a list of some of the more common conditions the CRA considers when marking one’s eligibility for the Disability Tax Credit –

• Osteoarthritis
• Digestion Disorders: Inflammatory Bowel Disorder, Colitis, Prostate Problems
• Limited Mobility Issues – Chronic Pain, Fibromyalgia, Arthritis, Spinal Stenosis, Ankylosing Spondylitis, Back and Neck Problems
• Breathing Disorders: COPD, Emphysema, Tuberculosis, Asthma
• Hearing Impairments
• Cognitive Impairments: Memory Loss, Dementia, Alzheimer’s, traumatic and acquired brain injury, Parkinson’s.
• Psychological Disorders: ADHD, Autism, Depression, Panic Disorder, Mood Disorders, Bipolar Disorder, Psychosis.
• Autoimmune Diseases: Rheumatoid arthritis, Diabetes Type 1

• Marked Restriction

The impairment must result in a marked restriction in the individual's ability to perform one or more basic activities of daily living. These activities include walking, feeding oneself, speaking, hearing, dressing, and performing mental functions necessary for everyday life.

• Certification by a Qualified Practitioner

A qualified medical practitioner must certify the extent and duration of the impairment by completing the Disability Tax Credit Certificate (Form T2201). Qualified practitioners may include medical doctors, optometrists, audiologists, occupational therapists, physiotherapists, and other specialists

• Cumulative Effects

The cumulative effects of the impairment on daily living activities must be considered. Even if an individual can perform a particular activity, the overall impact of the impairment on multiple activities is taken into account.

• Supporting Information

The individual applying for the DTC, or their legal representative, needs to provide additional information about the impairment, including the onset date, details of daily living restrictions, and the effects of treatments or therapies.

• Age Consideration

For individuals under 18 years of age, there is a specific provision for an additional credit or refund (supplement) under the DTC.

There are three main impairment categories eligible for the Disability Tax Credit (DTC), each with its own set of conditions. These categories are as follows –

1. Physical Impairments
2. Mental Illness and Psychological Impairments
3. Neurological Impairments

Eligibility for physical impairments

Physical impairments encompass a varied range of debilitating conditions that impede individuals from naturally participating in their daily routines. Merely possessing a diagnosis of a physical impairment is not adequate for eligibility for the Disability Tax Credit (DTC). Instead, eligibility is contingent upon the tangible effects of the diagnosis, particularly its impact on psychological aspects of daily life, including decision-making, judgment, memory, concentration, and other cognitive functions.

The Canada Revenue Agency (CRA) recognizes certain conditions within the spectrum of physical impairments to meet the Disability Tax Credit criteria. These conditions include but are not limited to –

• Chronic Pain
• Visual Disabilities
• Hearing Disabilities
• Elimination Disabilities
• Diabetes

Eligibility for mental illness and psychological impairments

In accordance with the criteria established by the Canada Revenue Agency (CRA), qualification for the Disability Tax Credit (DTC) is contingent upon the severity and enduring nature of impairment in mental functioning, resulting in a noticeable restriction. This restriction must substantially affect an individual's ability to perform essential mental functions in their day-to-day life, commonly known as "Activities of Daily Living" (ADL).

It's essential to highlight the updated eligibility criteria for the DTC. Until the tax years ending in 2021, the CRA considered memory, adaptive functioning, judgment, problem-solving, and goal-setting as crucial mental functions for everyday life. However, as of 2022, the CRA has expanded its eligibility guidelines to encompass individuals facing challenges in performing various mental functions essential for daily life. These functions now include –

• Adaptive Functioning
• Attention
• Concentration
• Goal-setting
• Judgment
• Memory
• Perception of Reality
• Problem-Solving
• Regulating Behavior and Emotions
• Verbal and Non-Verbal Comprehension

Eligibility for neurological impairments

Neurological impairments impact the functioning of the brain, leading to challenges in accurately and consistently controlling the body, particularly in severe cases. Coping with a neurological impairment can present significant difficulties, affecting tasks like holding objects or walking independently. The Canada Revenue Agency (CRA) recognizes certain conditions within the realm of neurological impairments as potentially meeting the criteria for the Disability Tax Credit. These conditions include, but are not limited to –

• Multiple sclerosis
• Alzheimer’s disease
• Parkinson’s disease
• Epilepsy
• Stroke

Individuals dealing with these neurological conditions may qualify for the Disability Tax Credit, granted that the impairments significantly impede their capability to carry out essential daily activities.

Disability Credit Tax – a Federal tax credit program

The Disability Tax Credit (DTC) represents an extensive federal tax credit program available to all Canadians and rigorously administered by the Canada Revenue Agency (CRA). When you receive the DTC, it includes two components: a Provincial amount and a Federal amount. The base Federal amount remains consistent across all provinces, ensuring uniformity regardless of one's province of residence. Conversely, the Provincial amount varies, contingent upon the specific province of residence.

Designed with the intent to alleviate the income tax burden for Canadians grappling with disabilities, the DTC recognizes the diverse tax landscapes across provinces. The Provincial amount adjusts in accordance with the distinct tax regulations in each province, akin to the variations in the overall amount of taxes payable in different regions of the country.

This nuanced approach underscores the flexibility of the DTC program, acknowledging the unique financial circumstances and tax structures inherent to each Canadian province. The aim remains to provide equitable support for individuals with disabilities, accounting for both Federal and Provincial considerations in the determination of the overall benefit.

How to apply for Disability Credit Tax?

Follow these simple steps to apply for Disability Tax Credit (DTC) in Canada –

• Obtain the Disability Tax Credit Certificate (Form T2201)

This form is available on the Canada Revenue Agency (CRA) website or can be obtained by calling the CRA at 1-800-959-8281.

• Complete the Form T220

The individual with the disability or their legal representative (e.g., a parent or guardian) needs to complete the form. This may involve providing details about the nature of the disability, the activities of daily living affected, and the duration of the impairment.

• Obtain Medical Certification

The form requires certification by a qualified medical practitioner, such as a medical doctor, optometrist, audiologist, occupational therapist, physiotherapist, or other specialists. The medical practitioner must provide information about the nature and severity of the impairment.

• Gather Supporting Documents

Collect any additional supporting documents that can strengthen your application, such as medical reports, test results, or letters from healthcare professionals detailing the impact of the disability.

• Submit the Completed Form

Once the form is filled out and signed by both the applicant and the medical practitioner, submit it to the CRA. The address for submission is provided on the form.

• Wait for Approval

The CRA will review the application, and the processing time may vary. You will be notified of the decision in writing. If approved, the Disability Tax Credit can be retroactive, meaning you may be eligible for tax credits for previous years.

• Claim the Credit on Your Tax Return

If your application is approved, you can claim the Disability Tax Credit on your income tax return. If you are not the person with the disability, but you are the supporting person, you may be eligible to claim the credit on your tax return.

What is Form T2201 – Disability Credit Tax form?

Form T2201 is the Disability Tax Credit Certificate in Canada. It is a document furnished by the Canada Revenue Agency (CRA) that individuals utilize to request the Disability Tax Credit (DTC). The DTC is a non-refundable tax credit established to offer financial assistance to individuals facing severe and enduring impairments that substantially limit their capacity to carry out fundamental activities of daily living, even with the aid of technology or medication.

Here are some of the basics of the T2201 form that you should know about –

• Purpose

The primary purpose of Form T2201 is to gather information about the individual's impairment and its impact on their daily life. It includes sections for medical practitioners to provide details about the nature and severity of the impairment.

• Sections of the Form

The form is divided into several sections, including –

• Section 1: Information about the person with the disability.
• Section 2: Certification by a medical practitioner, who provides details about the impairment and the extent of its impact on daily activities.

• Medical Certification

The completion of Form T2201 requires certification by a qualified medical practitioner, which may include medical doctors, optometrists, audiologists, occupational therapists, and other specialists. The medical practitioner must provide information about the duration and severity of the impairment.

• Submission

Once completed, the form is submitted to the CRA for assessment. It's essential to include any additional supporting documentation, such as medical reports, test results, or letters from healthcare professionals.

• Assessment and Approval

The CRA reviews the application, and if approved, the individual becomes eligible for the Disability Tax Credit. The credit can be claimed on the individual's income tax return, providing financial assistance.

Frequently Asked Questions (FAQs)

1. How much Disability Credit Tax amount will I receive?

In the tax year 2023, individuals aged 18 or older who qualify for the Disability Tax Credit (DTC) can potentially claim $8,986. Moreover, if these individuals rely on someone else for care, there is a possibility to transfer all or a portion of this amount to the caregiver.

2. Can I apply for Disability Credit tax on behalf of my family?

Certainly, you have the option to apply for the Disability Tax Credit on behalf of a dependent family member, whether it be a child, spouse, sibling, or parent. The key requirement is to demonstrate that you are actively supporting the individual with a disability. This support could encompass various forms, such as providing care, managing their affairs, or acting as their legal representative. As long as you can establish your role in supporting the disabled person, you are eligible to initiate the application process on their behalf.

3. Does Disability Credit Tax expire?

Certainly, the Disability Tax Credit (DTC) does come with an expiration. Typically, DTC approvals are valid for a set duration, often spanning from 4 to 6 years. If the Canada Revenue Agency (CRA) foresees the potential for improvement in your impairment or personal circumstances, they may grant approval for a specified period. Once this approval period concludes, it is necessary to submit a new DTC application to continue availing the credit.

In certain scenarios, the CRA may determine that the impairment or the individual's situation is unlikely to undergo significant changes. In such instances, the CRA may provide indefinite approval for the Disability Tax Credit, eliminating the need for recurring applications.

4. How do I know if my Disability Credit Tax has been claimed?

Log into your CRA account to check if your Disability Credit Tax has been claimed or not. You can also ask your accountant to do so. Review your previous year's Income Tax Report on your online CRA account to locate Line 316 (if you claimed for yourself), Line 318 (if you claimed for your dependent), or Line 326 (if you claimed for your spouse or common-law partner).

5. How is Disability Credit Tax paid?

The Disability Tax Credit (DTC) can be disbursed through various methods.

• Adult Retroactive Payments

The Canada Revenue Agency (CRA) conducts a reassessment of taxes paid during the eligibility period. Subsequently, a one-time payment is issued to the eligible individual encompassing all retroactive years.

• Child Retroactive Payments

In the case of a child with a Disability Tax Credit, the CRA not only reassesses taxes paid by the claimant (as mentioned above) but also calculates a "supplemental amount" for those years. This additional amount is disbursed to the parent receiving the Canada Child Benefits as a "Child Disability Benefit."

• Annual Disbursement

During the annual tax filing process, individuals are encouraged to claim the Disability Tax Credit. The calculated amounts are then credited to the individual, serving to offset the taxes owed.

These varied payment methods provide flexibility in addressing the specific circumstances of individuals eligible for the Disability Tax Credit, ensuring that the disbursement aligns with their needs and preferences.