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Often, we or someone we care about may have been born with or develop an impairment. This impairment can be physical or mental, resulting in the person requiring extra care. With extra care, comes an extra financial burden. As a result, there is a need for financial support. For people who find themselves or their family in this situation, they can apply for the Disability Tax Credit (DTC).
What is the Disability Tax Credit?
The DTC is a non-refundable tax credit. By non-refundable, we mean it reduces any taxes owing on your tax return. Created by the Canadian Government & the Canada Revenue Agency (CRA), the DTC reduces taxes for people with disabilities &/or their supporting families. By doing so the credit helps offset the extra expenses associated with the disability. Additionally, if you can’t use the entire credit or find yourself being in a non-taxable position, then this credit may be transferrable.
When approving a DTC application, the CRA looks at several categories:
– Mental & physiological
– Life Sustaining Therapy
Each category has its own conditions & in each, the CRA looks at the impairment’s severity. They also look at your ability to perform daily living activities. These activities include, but are not limited to dressing, personal care, carrying things, walking, etc. Life sustaining therapies which include treatments such as dialysis treatments, insulin dependency, & type 2 diabetes may qualify as well.
On June 23, 2022, the Canadian government passed a new legislation. Now, DTC applications submitted by Type 1 diabetic Canadians are automatically approved. It is applicable for the 2021 tax year forward & is not retroactive to prior years. However, if you want to apply now, we can adjust your 2021 tax return.
Depending on who has the impairment, you need their doctor or qualified healthcare practitioners to fill out T2201 DTC Application form. We then submit the form to the Canada Revenue Agency (CRA). Why should we submit the form for you? By us submitting the form, we can assist you with any issues arising with the application. There’s more however, we’ll cover those under adjustments.
The CRA reviews the application & if it meets their criteria, they approve it. Once approved, , the CRA specifies in their approval letter what years (limitation) the DTC covers. If you’re wondering why there may be a limitation on a DTC, there are a few reasons:
– The impairment may not be permanent
– They only approve as far back as the condition originated, based on the T2201 form
The DTC amounts you’ll receive will differ based on whether it’s for an adult or a child. Additionally, because the funding comes from both federal & provincial governments, the amounts vary by province. If the DTC application is for a child, one thing that changes immediately is the child tax benefit increases.
Now that the DTC is approved comes the tax return adjustments.
Do not Let CRA Do Adjustments
Whatever you do, do not let the CRA adjust your tax return unless you are 100% certain there are no additional credits or transfers available. The CRA will only adjust the tax return to include the credit in the name of individual who qualifies for the DTC. We can potentially do so much more for you!
DTC Adjustments & Why We should Do Them
DTC approvals always trigger tax return adjustments for any tax return that has already been filed, including the current year.
To file tax return adjustments, it is important we have all the information of all the people involved such as:
– Parents of under-aged or adult children
– Spouses / common-law partners
– Adult children of parents with impairments
Why Do We Need This Information?
If we file the adjustments for you, we can adjust the current & all prior years per the CRA approval letter. For example:
If the CRA approved a DTC for 2012 to indefinite. We can adjust the current tax year & up to 10 previous years. That’s a lot of potential money returned to you!
We can also transfer any unused credits to parents, or spouses / common-law partners. We can also transfer unused DTC credits to children who provide some financial support for a parent. You may wonder what unused tax credits are. People who qualify for the DTC may have a lower income or may be in a non-taxable income situation. Being as the DTC is used to reduce taxes, they may not be able to use the DTC to reduce their taxes further. The CRA allows these unused credits to be transferred to that person’s care-giver to help reduce their taxes. This is beneficial as the caregiver often incurs the extra costs associated with assisting a person with impairments.
What Else Can the DTC Affect?
Once the DTC is approved, there are the additional credits we can adjust for that the CRA does not. All transfers are from the qualified DTC applicant to the eligible person. Please note, where we mention spouse below, we are referring to spouse or common-law partner.
When a tax return is adjusted, we can also adjust or transfer the following:
1. Fitness or Arts credits (prior years only).
2. Caregiver amount
– If disability requires spouse/parent/child to look after disabled person
– Credit to help defer costs associated with caregiving
3. Canada workers benefits (CWB)
– For people who are working but with some limitations
– Increases based on having DTC
– Qualify based on income
4. Spousal transfers
– We look for any credits the individual can’t use & transfer to the spouse
– Can be transferred to the spouse/parent/child
– Nursing home medical expenses
– Carried forward, transferred to spouse or parent
7. Student Loan Interest
– Carried forward
8. Home Buyers Amount
– Carried forward, transferred to spouse
– Carried forward, transferred to spouse
10. Home Accessibility Tax Credit (modify home to suit limitation)
– Transferred to eligible individual
(a spouse, parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew, or niece)
11. Pension Splitting
– Spouse only
12. Disability tax credit supplement for children under 18
– Based on who is claiming childcare expenses
As you can see there is so much more, we can offer you, should you (or your loved one) qualify for the Disability Tax Credit. Of course, it all depends on the CRA’s approval dates, what the DTC is for, who it is for etc.
To find out more on this lengthy & involved topic, contact us and have a chat with one of our outstanding tax professionals.