Disability Tax Credit – Personal Tax Credits

Disability Tax Credit – Personal Tax Credits – Toronto Tax Lawyer Analysis

Introduction

If you have one or more severe and prolonged impairments that restrict your ability to perform a basic activity of daily living, you may be eligible to claim the Canadian disability tax credit on your personal income tax return. The amount of the credit is dependant on your circumstances, but can be as high as $1,900.20 per year, as a direct reduction of your Canadian income tax payable to CRA. If your circumstances allow, you may also be able to access the disability tax credit for previous years. Some taxpayers have received large refunds by amending their past 10 years of income tax returns once approved for the disability tax credit. The income tax credit is not refundable, so the disabled person eligible for the tax credit can at most reduce their income tax payable to zero and they will not receive money from CRA for reducing their tax payable below zero. However, unused disability tax credits can be transferred to the spouse of the eligible individual or to certain persons who support the eligible individual. Before you can claim the disability tax credit, you must apply to CRA by submitting a T2201A form filled out by you and a qualified medical practitioner. If your application is denied by CRA, one of our top Canadian income tax lawyers can help you contest CRA’s decision.

Eligibility for the Disability Tax Credit

In order to qualify for the disability tax credit, you must have one or more severe and prolonged impairments. Your impairment is prolonged if it has lasted or can reasonably be expected to last for at least 12 months. The impairments must markedly restrict your ability to perform a daily task of living or they must significantly restrict several daily tasks of living where the cumulative effect is equivalent to having a marked restriction in your ability to perform a daily task of living. You also qualify if your impairments would markedly restrict your ability to perform a daily task of living but for a therapy that is vital to sustain a vital function and cannot reasonably be expected to be of significant benefit to persons who are not so impaired. The therapy must also need to be administered at least three times a week for a total combined duration averaging not less than fourteen hours per week. The impairments must also be certified by a qualified medical practitioner, usually a medical doctor. The disability tax credit cannot be claimed if any individual claims the medical expenses tax credit for attendant or nursing home expenses incurred for the care of the impaired individual. If you need help determining if you qualify, please contact one of our expert Toronto tax lawyers for more information.

Basic Activities of Daily Living Defined

The Canadian Income Tax Act exhaustively defines what qualifies as a basic activity of daily living. The activities defined as such in the tax act include, feeding oneself, dressing oneself, walking, speaking to be understood in quiet conditions, hearing to understand in quiet conditions, bowel functions, and bladder functions. The act also includes certain mental functions necessary for everyday life in the same category including memory, adaptive functioning, and problem solving taken together with goal setting and judgment. The Canadian Income Tax Act specifically excludes procuring clothing, procuring food, and preparing food to the extent the time necessary for the activity would not be necessary but for a dietary restriction from the list of basic activities of daily living.

Your ability to perform a basic activity of daily living is markedly restricted when you are unable to perform that activity all or substantially all the time. Your ability also counts as markedly restricted if performing the activity takes an inordinate amount of time all or substantially all the time. An inordinate amount of time means significantly more time than an average person performing the same activity. If you need help with determining whether an individual’s impairments will make them eligible for the disability tax credit, don’t hesitate to contact one of our top Canadian tax lawyers.

Calculating the Disability Tax Credit

If you are eligible for the disability tax credit then you are entitled to a tax credit equal to a base amount multiplied by the lowest marginal tax rate for the year. As of 2016, the base amount is $8,001 and the lowest marginal tax rate is 15% so the credit is $1200.15. This credit is deducted from your Canadian income tax payable for the year. The tax credit is not refundable, so if your income is not large enough to absorb the credit, you will not receive money from CRA if the tax credit you receive reduces your income tax payable below zero. As discussed later in this article, you may be able to transfer the unused portion of your tax credit to someone else.

If you are under the age of 18 at the end of the tax year, you may be eligible to receive a supplemental credit in addition to the base credit. In 2016, the supplemental credit is calculated by multiplying the lowest marginal tax rate, 15%, for the year by the supplemental amount. For 2016 the supplemental amount starts at $4,667 and is then reduced by the amount by which the sum of the amounts if any that have been claimed as a deduction for your care or supervision under certain other provisions of the Canadian Income Tax Act exceeds $2,734. For example, if $3,000 has been claimed for child care and medical expenses under different parts of the Income Tax Act, then the supplemental amount is calculated as follows:
Supplemental Amount = $4,667 – ($3,000 – $2,734) = $4,401.

This would mean you would receive $660.15 from the supplemental credit and $1200.15 from the base credit for a total of $1,860.30 to be deducted from your income tax payable. The maximum disability tax credit that can be claimed for a single tax year is $1,900.20, to which you are entitled if you are eligible for the supplement amount and no more than $2,734 of certain care and supervision deductions and credits have been used. If you need help determining how large a disability tax credit you are entitled to, don’t hesitate to contact our experienced Toronto tax lawyers.

Transferring the Disability Tax Credit to a Spouse or Common-law Partner

If your spouse or common law partner is eligible for the disability tax credit but does not have enough tax payable to fully use the tax credit, then you can make use of the unused portion of their tax credit to reduce your own income tax payable. For the purposes of the Canadian Income Tax Act, an individual is your spouse if you are legally married to them. Likewise, an individual who is not your spouse is your common law partner for the purposes of the Canadian Income Tax Act if you are living in a conjugal relationship with them and at least one of the following three criteria is met:

• You have been living with them in a conjugal relationship for a continuous period of at least 12 month;
• They are the parent of your child by birth or adoption; or
• They have custody and control of your child who is wholly dependent on that person for support.

If you are living separate and apart from your spouse or common law partner due to relationship breakdown at the end of the year and for 90 days starting at the beginning of the next year, then you cannot transfer the unused credits. For more information on whether you are able to transfer credits from an eligible individual, please consult one of our knowledgeable Canadian income tax lawyers.

Transferring the Disability Tax Credit to a Supporting Individual

If you are supporting a dependant who qualifies for the disability tax credit you may be able to use the unused portion of their tax credit. If the dependant is your or your spouse/common law partner’s child, grandchild, parent, grand parent, brother, aunt, uncle, nephew, or niece then you can transfer their unused tax credits. You may also be able to transfer credits from someone who lives with you and depends wholly on you for support. You cannot access the unused tax credits for a dependant if you or another taxpayer is claiming medical expenses for an attendant or nursing home for the dependant. If more than one individual supports the dependant, the sum of all the tax credits the supporting individual claim cannot exceed the total amount of unused credits that the dependant has.

Disability Tax Credit Filing Requirements and Procedures

Prior to claiming the disability tax credit, you need to apply to CRA by submitting a T2201 form. The T2201 form needs to be filled out by both the individual eligible for the disability tax credit and the medical practitioner who is certifying their impairment. CRA will respond to your application either by approving your application or dismissing it. If your application is approved, the eligible individual can claim the disability tax credit each year on their tax return. If you were eligible in previous tax years, you may also be able to amend your income tax returns for those previous years to claim the disability tax credit in those years as well. This has lead to some taxpayers being approved for large refunds by amending their last 10 years of income tax returns. You do not need to file a new T2201 form each year so long as your circumstances don’t change. The CRA may ask for additional information or a new T2201 form and you must provide it to them if you wish to continue claiming the disability tax credit. If your application was dismissed you can apply for a second level review or file a notice of objection. Our Toronto tax litigation lawyers can help you assess whether you have been denied a credit you are entitled to and dispute the CRA’s decision if necessary through a Notice of Objection or a court appeal.

Conclusion

If you have a long term impairment that has severely impacted your life, it is worth looking into whether you are entitled to the disability tax credit. If your spouse, partner, or one of your dependents has an impairment that qualifies them for the disability tax credit, you may be able to make use of their unused disability tax credits. For more information on the disability tax credit, please contact one of our top Toronto tax lawyers.

About the Author

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David J. Rotfleisch

David J. Rotfleisch, a leading Canadian tax lawyer, is not only a certified specialist in taxation but also a chartered professional accountant. Most recently, David is a pioneer in Canadian crypto taxation.

As of April 2020, he was one of 12 Ontario Certified Specialists In Taxation™.

Learn more about David J. Rotfleisch