Young woman on a wheelchair over a green meadow
iko/123RF

If you have a client who has a physical or mental disability, or who has a family member with a disability, determining whether he or she has applied for the disability tax credit (DTC) is a crucial first step in helping him or her establish a financial plan. Not only is the DTC a significant benefit in itself, but qualifying for this credit opens the door to a range of other government benefits for qualifying individuals.

However, many clients fail to apply for the DTC, because they either don’t know about it or they are put off by the perceived complexity of getting approved. Your eligible clients could be missing out on significant benefits.

“I call [the DTC] the building block of any special-needs planning,” says Peter Weissman, a partner at Cadesky and Associates LLP in Toronto.

The DTC is available to eligible individuals with “severe and prolonged impairments” and is intended to help mitigate the higher costs and loss of earning power that often are associated with living with a disability. The DTC provides both a federal and a provincial non-refundable tax credit that can result in tax savings of $1,500-$2,600 a year. People with disabilities can claim the DTC themselves or they can share it with a spouse, common-law partner or another supporting family member. Claims can be made retroactively for up to 10 years.

“Even if the person with a disability doesn’t have any income [against which to apply the DTC],” says Jamie Golombek, managing director, tax and estate planning, with the financial planning and advice group at Canadian Imperial Bank of Commerce in Toronto, “a supporting person, often a parent, will claim it on behalf of that individual.”

And, perhaps most important, the DTC allows the eligible individual to access benefits such as the registered disability savings plan (RDSP), the child disability benefit (CDB), the home accessibility credit and a more flexible registered education savings plan (RESP), among others.

Yet, only about 40% of working-age adults with qualifying disabilities claim the DTC, according to a study conducted by the School of Public Policy at the University of Calgary.

The study’s report, released in January, suggests that the reasons individuals with disabilities may not be applying for the DTC is that they think the process is too onerous, believe they can’t get much benefit from the DTC or are simply not aware of the DTC. The report suggests that the program’s eligibility criteria aren’t always aligned with the realities of certain disabilities and that individuals who should be eligible for the DTC are being turned down.

The report calls for a clear and transparent review and appeals process for the DTC.

Last year, partly in response to a call from disability advocates, the federal government reinstated the Disability Advisory Committee, which had been disbanded in 2006 after about two years of existence. The reconstituted committee’s mandate is to advise the Canada Revenue Agency (CRA) regarding the needs and expectations of people living with disabilities, make recommendations about how the CRA can enhance quality of service and increase awareness of the DTC.

To apply for the DTC, your client must provide a DTC application (Form T2201) completed by a medical practitioner to certify that your client is markedly restricted in performing a basic activity of daily living all or most of the time. The CRA may approve the individual for the certificate, typically, for a set number of years, after which he or she must reapply. If the CRA denies the application, there is an appeals process.

Although the application process is not as difficult as some people believe it to be, obstacles can emerge, particularly while the application is being processed by the CRA, Weissman says. When an application is declined, people often feel discouraged, which may contribute to the relatively low take-up of the DTC. “People might have applied in the past and had issues [receiving approval] and don’t want to reapply.”

However, the potential benefits of the DTC are so significant that you should encourage a potentially eligible client to apply – even if there’s a possibility that the client’s health will improve, which would result in ineligibility at that point.

“There’s no downside for being approved this year, but not getting approved the year after,” says Jonathan Braun, manager, tax and estate planning, with Investors Group Inc. in Winnipeg.

The DTC is an essential component for proper financial planning, tax planning, retirement planning and estate planning for clients with disabilities and their families.

Here are some of the major benefits associated with claiming the DTC:

Registered disability savings plan. The biggest benefit of having DTC approval, aside from the non-refundable credit itself, is access to the RDSP, which is a savings vehicle that facilitates the accumulation of long-term savings for the benefit of a person with a disability. Eligible RDSP-holders can contribute up to a lifetime limit of $200,000 to an RDSP on an after-tax basis. Matching government grants and bonds are available, and any income and capital gains are sheltered from taxes as long as the accountholder remains in the plan.

However, should your client lose his or her eligibility for the DTC, no new contributions can be made. The RDSP would have to be collapsed and the grants and bonds repaid by the end of the second year in which the beneficiary was not eligible for DTC for that entire year. An election can be made to keep the RDSP open for up to five years following the loss of DTC eligibility if there’s a likelihood that the individual will be eligible for the DTC again.

Child disability benefit. This benefit, paid as a supplement to the Canada child benefit, is a tax-free benefit of up to $2,730 a year for families who have a child under age the age of 18 who is eligible for the DTC. The CDB begins being reduced at an adjusted family net income of $65,000 and is eliminated entirely at $107,050.

Homebuyers plan. Under this plan, individuals can borrow up to $25,000 from their RRSP in order to buy or build a home for themselves, provided they qualify for the DTC, or for a related DTC-eligible person. In the case of a home purchase for an eligible person, the borrower is not required to be a first-time homebuyer. But the purchased or built home must address the needs of the person with disabilities better than his or her current home does.

Home accessibility tax credit. This credit provides a non-refundable tax credit of 15% for costs up to $10,000 incurred in a qualifying renovation of a home for a DTC-eligible person (or a person over the age of 65). The person with a disability – or the individual’s spouse, common-law partner or supporting family member – is eligible for this credit.

Specified resp. An RESP with a single beneficiary who is entitled to the DTC is known as a “specified” plan. Contributions to such a plan can be made until the 35th anniversary of establishing the plan instead of the 31st anniversary of a non-specified plan. In addition, the specified plan doesn’t have to be wound up until the 40th anniversary rather than the 35th anniversary.

Costs of attendant care. As part of eligible medical expenses, a person with a disability or a supporting family member can claim the costs of attendant care for an individual who is eligible for the DTC.

Depending on the type of care the eligible person receives, various options are available. He or she can claim the DTC, the eligible amount of attendant expenses or the eligible amount of expenses up to $10,000 ($20,000 in the year of death of the person with disabilities). Approval for the DTC typically still is required to claim expenses incurred when receiving attendant care.

The rules governing the claiming of these expenses as medical expenses are complex, so these clients should receive professional tax advice.