You may qualify for the disability tax credit — and not know it

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The disability tax credit is a non-refundable credit that a taxpayer — or their family — can claim annually on their return. It reduces the tax payable to offset the increased costs resulting from physical or mental impairment. The disability tax credit is also a gateway to other financial incentives, and many people who qualify do not realize it.

Qualification

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According to Canada Revenue Agency (CRA), a taxpayer may be eligible if a medical practitioner certifies that they have a severe and prolonged impairment in a qualifying category. The categories include hearing, speaking, vision, walking, dressing, feeding, eliminating (bowel or bladder functions), or mental functions. The impairment must be considered a marked restriction, meaning it takes the person three times longer to complete a task than it would someone at a similar age without the impairment, even with therapy, medication and devices. The restriction must be expected to last for at least one year and be present at least 90 per cent of the time.

Alternatively, if a taxpayer does not qualify in a single category but has two or more categories with impairments, the cumulative effect may qualify them if, combined, the impact is as severe as a single category restriction. An example that the CRA gives is “if a person always takes a long time to walk and dress, and the extra time it takes to do these two activities is equivalent to being unable (or taking three times longer) to do just one of them, then they may be eligible.”

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A third and final category to qualify is if a taxpayer receives life sustaining therapy to support a vital function. An example is if someone has type 1 diabetes, but many other health issues can qualify. The therapy must occur at least twice weekly, take at least 14 hours per week, and be expected to last for more than a year.

Therapies may include dialysis, insulin therapy, oxygen therapy, chest physiotherapy or other life sustaining therapies.

Examples

If someone is deaf, blind, or immobile, they will likely qualify for the tax credit. Severe cognitive impairment such as dementia is also likely to qualify. As of 2021, medical practitioners do not need to provide details to support qualification for type 1 diabetics as they now automatically qualify for the disability tax credit (DTC).

There are other less obvious conditions that may be recognized for the disability tax credit. Someone suffering from depression that substantially limits their daily functioning, for example. Also, a developmental condition like autism spectrum disorder or, depending on the severity, a learning disorder. If a person has a condition that causes severe pain that limits their daily activities, this too may qualify.

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The CRA does not provide a specific list, so the onus is on the taxpayer to demonstrate their eligibility.

Applying for the DTC

A taxpayer can apply digitally either online or by phone. They can also apply by completing and mailing a paper form. The digital application starts with an initial online or phone application resulting in the issuance of a reference number. The reference number must be provided to a medical practitioner who can then attest to the disability.

For the paper application, the CRA document is Form T2201, Disability Tax Credit Certificate. Most medical practitioners are familiar with the form. Medical practitioners who can support a DTC application for all impairments include medical doctors and nurse practitioners. For other impairments, specialists in applicable fields are eligible, including optometrists (vision), audiologists (hearing), occupational therapists (walking, feeding, dressing), physiotherapists (walking), psychologists (mental functions), and speech-language pathologists (speaking).

Tax savings

If you qualify for the disability tax credit, the federal tax savings are up to $1,481 in 2024. Provincially, the maximum tax savings range from $477 to $1,688. There is also an additional disability amount supplement for those under the age of 18.

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If a condition began in the past, the CRA will allow retroactive tax refunds for up to 10 years. For a condition that began more than 10 years ago, potentially at birth for a qualifying applicant, the tax refund could be more than $20,000.

If the person with the disability does not need to claim the full disability tax credit to reduce their income tax — perhaps they do not owe any tax — the credit can be transferred. They must be related to the recipient of the credit, including a spouse, parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew. These same relations of your spouse or common law partner would qualify as well.

Registered disability savings plan

If someone qualifies for the DTC and is under the age of 60, they can open a registered disability savings plan (RDSP). This is a tax sheltered savings plan that includes government grants for contributions made up to December 31 of the year the beneficiary turns 49.

The grants can be lucrative. Ror RDSP beneficiaries whose family income was less than $106,717 on their 2023 tax returns, the grants are at least $1,000 on the first $1,000 of contributions and can be $3,500 on $1,500 in contributions.

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Summary

The disability tax credit can provide significant financial support for those who qualify.

Besides tax reduction and the RDSP, those approved may also qualify for other tax credits, including the annual Canada workers benefit disability supplement, and the monthly child disability benefit supplement.

Those with disabilities and their families may incur significant costs for care, therapies and treatment. Many people who qualify are unaware and may be missing out.

Jason Heath is a fee-only, advice-only certified financial planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever. He can be reached at jheath@objectivecfp.com.

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