A disability situation can make life difficult for the disabled person and their family. The person has additional expenses to support their disability needs. For this reason, the Canada Revenue Agency (CRA) provides a Disability Tax Credit as well as other disability benefits to help minimize their tax burden.
However, many times taxpayers are not well-informed about the disability tax credit, and other disability benefits. This often leads to them missing out on claiming these credits on their tax return. Therefore, we at AG Tax LLP have prepared a brief overview of the different disability credits along with important information associated with claiming these credits for tax purposes.
What is the ‘Disability Tax Credit’?
Well, in general, the disability tax credit (DTC) is a non-refundable credit. This credit helps minimize the tax liability of taxpayers with qualifying severe mental or physical disability. Taxpayers with qualifying disabled dependents can also claim this tax credit. The maximum amount of this credit is $7,899 for 2016, adjusted annually for inflation.
How does a person qualify for the ‘Disability Tax Credit’?
Qualifying for the Disability Tax Credit is a simple process, requiring the individual to file CRA Form T2201-Disability Tax Credit Certificate. This form needs to be completed by a certified medical practitioner. Basically, the form must state that the individual is suffering from a severe medical condition that will affect the rest of the person’s life. Upon completion, Form T2201 is to be submitted to the CRA.
What is ‘Canada Child Disability Benefit’ & ‘Child Tax Credit’?
In Canada, taxpayers with children below 18, are provided a certain monthly benefit by the government known as the ‘Canada Child Benefit’ (CCB). The benefit amount depends on the family’s taxable income. However, in addition to the CCB, taxpayers with disabled children can also claim the ‘Child Disability Benefit.
The Child Disability Benefit (CDB) is a tax-free benefit that disabled individuals below age 18 or their families can claim. It is a supplementary benefit amount of $4,607 per child per year, and receivable on a monthly basis.
To qualify for the child disability benefit, the taxpayer (or child’s guardian) is required to have Form T2201 completed by a certified medical practitioner. The purpose of this form is to disclose the disability and certify the date of disability.
Note that the Form T2201 is filed only once to qualify for both: Canada Disability Tax credit and the Child Disability Benefit.
How to claim the ‘Canada Disability Tax Credit retroactively
At A.G. Tax LLP, we often have clients who qualify for the Disability Tax Credit, but have never claimed it, in this case, we can request adjustments on their past income tax returns. The credit can be claimed for all eligible years, up to 10 years. The request is made online or by filing the form T1ADJ. In this case as well, the person is required to provide a certificate from a certified medical practitioner stating the time frame of the individual’s disability.
Canada Disability Pension & Registered Disability Savings Plan (RDSP)
At times our clients question about the best way to save for their disabled dependents. In this case, we recommend that taxpayers with qualifying disabled dependents can consider opening a registered disability savings plan. It is a savings account designed especially for people with disabilities, and qualifying for disability tax credits. The purpose of this account is to chiefly help parents, taxpayers and guardian to save for long term financial security.
The account owner can save into this account until the beneficiary turns 59. However, contributions made to this account are not tax deductible. Funds withdrawn from the RDSP are not included in the beneficiary’s income. But, an important key point to remember is that, the investment income earned and rollover amounts (saving grants or bonds) are reportable on the annual Canadian income tax return. These amounts are reportable on the beneficiary’s income statement when withdrawals are made from the account.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. We are a team of highly experienced tax professionals with extensive knowledge of U.S. and Canadian cross-border compliance as well as U.S. and Canadian tax laws.
As a full service accounting firm, we are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.