The Disability Tax Credit Certificate: what you need to know
For aging adults and their caregivers, knowing about the Disability Tax Credit is important, not only for its own tax benefits but because it also opens the door to other tax credits. Understanding this certificate and the application process also helps with the option of completing the application yourself, saving yourself the expense of (costly) services to complete it for you.
Why apply for the Disability Tax Credit (DTC) Certificate?
Before getting into the admittedly boring details, let’s set out why, if eligible, it is worth it to apply for the DTC certificate.
First, if the Disability Tax Credit Certificate has been approved, either the person with the disability or a supporting person can apply for this credit. This is important because many seniors have such a low income that they do not pay income tax. If so, caregiver/s may be able to apply for the credit.
A supporting person is defined as a common-law partner, spouse, parent, child, grandparent, grandchild, sister, brother, aunt, uncle, niece, or nephew.
A supporting person may be able to claim all or part of the disability amount if the person was dependent on the supporting person for some or all of the basic necessities of life (food, shelter, or clothing). This is good news because many caregivers are spending millions of dollars in out-of-pocket expenses to financially help out their parents.
The DTC certificate paves the way to claim medical expenses related to nursing home care costs. You can also claim as medical expenses the salaries and wages paid to all employees who do the following tasks or services in your own home or a senior’s retirement home:
- food preparation
- housekeeping services for a resident’s personal living space
- laundry services for a resident’s personal items
- health care (registered nurse, practical nurse, certified health care aide, personal support worker)
- activities (social programmer)
- salon services (hairdresser, manicurist, pedicurist) if included in the monthly fee
- transportation (driver)
- security for a secured unit
You can see from the list above that, if approved for the DTC certificate, the definition of medical expenses is broadly defined. Many of the above tasks and services are key to older adults remaining in their home.
Also, the DTC certificate opens the door to also apply for Canada Caregiver Credit.
What exactly is the Disability Tax Credit Certificate?
The disability tax credit (DTC) is a non-refundable tax credit used to reduce the income tax you pay. Non-refundable means that it is set up to reduce a person’s taxable income to zero. There is no refund if there is no income tax owed.
This tax credit tax is a recognition that there are additional expenses when you have a “severe and prolonged impairment in physical or mental functions”.
The individual must be markedly restricted all or substantially all of the time in their ability to perform a basic activity of daily living or would be markedly restricted were it not for extensive therapy they receive to sustain a vital function.
What is a basic activity of daily living?
Revenue Canada provides examples and videos which explain each of basic activities of daily living:
- Eliminating (bowel or bladder functions)
- Mental functions necessary for everyday life
You can see from this list that these are the kinds of impairments that can develop with older age.
What is a prolonged impairment? markedly restricted?
Revenue Canada defines a prolonged impairment as one that has lasted or is expected to last, for a continuous period of at least 12 months.
Markedly Restricted means that all of the time or substantially all of the time a person is unable (or it takes an inordinate amount of time) to perform one or more of the basic activities of daily living even with therapy (other than life-sustaining therapy to support a vital function) and the use of appropriate devices and medication.
According to the Canada Revenue Agency, “substantially all of the time” means that the restrictions in activity are present 90% of the time or more.
The T2201 “Disability Tax Credit Certificate: Part A
The T2201, “Disability Tax Credit Certificate” application form itself is completed in two parts. The person with the disability or their representative completes part “A”. It outlines information about the person with the disability such as their name address, Social Insurance Number (SIN #) and date of birth.
DTC: Part B
Part B is completed by a qualified medical practitioner. Depending on the type of impairment, a medical doctor, nurse practitioner, optometrist, audiologist, occupational therapist, psychologist, or speech-language pathologist may complete this portion.
Before you file an application for the Disability Tax Credit, you may want to check first with your medical practitioner. They will likely be able to tell you whether you are eligible. The CRA also provides a self-assessment which can help you figure out if you are likely eligible.
Back-file 10 years
Depending on the onset of the disability, you may use the credit both in the current year and go back as far as 10 years. This can result in substantial amounts of money for people with disabilities or for people such as caregivers who have provided support to them.
To give you a sense of the credits, for 2020, the federal non-refundable DTC for an adult is $8,416.
DTC Application completion: who should do it?
People are often intimidated by tax forms. Consultants have made millions from their fees for completing the DTC application (some even charging as much as 30 % of the tax refund). The fees are often excessive and unjustified. As a result, the federal government has proposed legislation that would limit the fee to $100 per taxation year submitted.
The federal government provides step-by-step instructions for filling out the form. Also, your local federal constituency office should be able to assist with completion. You can also get help from the CRA itself by calling 1-800- 1-800-959-8281. Another option is to use the services of a tax professional, like an accountant. They can help you get all your entitled tax credits.
Once your application is completed, it is sent to Revenue Canada for approval. If approved, you can claim the disability amount when income tax is filed.
You may want to bookmark this page if it isn’t currently applicable to you or your parents’ condition.
If you have applied for the DTC certificate, we would love to hear about your experiences.