Disability tax credit is frequently overlooked

As a financial adviser, I often encounter families who aren’t maximizing their tax credits.

It may be they don’t understand the application process, they think it’s not worth it if their income is too low, or they don’t realize they qualify for specific programs.

For example, do you have a child who struggles with severe ADHD? Does it take you a long time to climb a flight of stairs? Are you caring for someone who is receiving life-sustaining therapy? If so, you may be eligible for the disability tax credit (DTC).

In my experience, the DTC is one of the most frequently overlooked tax-saving opportunities.

Yet, it could save you and your family money: in 2016, if you lived in Ontario and claimed the DTC, you could save $1,608 in income tax or $2,546 if the amount was for a minor child. Why is this credit missed so often?

It must be applied for separately from other disability benefit programs.

To claim the DTC, you must submit a completed T2201 (cra.gc.ca/ dtc) and be approved by the CRA. If you currently receive ODSP benefits, you may think that the government “already knows” about your disability and will automatically register you for the DTC.

However, these programs are not connected and you must apply for them independently.

Qualification for one program does not guarantee that you are eligible for the other, but you may qualify for both.

The individual with the disability has no taxable income so there is assumed to be no benefit.

The DTC is a non-refundable tax credit. This means that it reduces income tax payable, but isn’t refunded if you don’t pay tax. However, unused credits can be transferred to a spouse or a caregiver, who may have higher taxable income. In addition, eligibility for the DTC qualifies you for other programs and benefits, such as the Registered Disability Savings Plan (RDSP) and/or the Child Disability Benefit (CDB).

The RDSP is a generous matched-savings program where individuals under the age of 49 could receive up to $70,000 in lifetime grants, with an additional $20,000 in Canada Disability Savings Bond for low-income families. Alternatively, the CDB is a tax-free benefit for families with children under 18 who receive the DTC. The CDB has a maximum entitlement of $2,730 per year based on family income.

The person who qualifies does not consider themselves “disabled.”

The DTC is an acknowledgement by the government that living with severe and prolonged impairments is expensive. It is not a diagnosis, nor is it public information. It is possible that you could have impairments in one aspect of daily life but are otherwise high functioning. That is why it’s important to read the CRA eligibility guidelines carefully.

If you or someone you care for suffers from a severe and prolonged disability, complete the T2201 (Part A), have the appropriate medical practitioner complete Part B, and submit the form to your tax services office. More information can be found on the CRA website or by contacting a tax professional.

Part of an occasional series by Sabrina DiFederico, CFA, CPA, CA, MBA, an independent financial adviser with her own wealth management practice in Hamilton. She can be reached at sabrina@managedwealth.net