The DTC is retroactive for 10 years assuming it’s not a new disability.iStockPhoto / Getty Images
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Some Canadians with disabilities don’t apply to receive the disability tax credit (DTC) because they believe they won’t be approved. But they could be leaving significant money on the table if they do, in fact, qualify.
“Most people who inquire about the DTC have a more obvious disability, but many more people qualify,” says Chris Poole, certified financial planner (CFP) with CWP Financial Services Inc. at Sun Life Financial Investment Services (Canada) Inc. in Toronto.
“There’s a big gap in terms of education, and there’s no penalty to applying if you’re not successful.”
For example, Mr. Poole had a client who had severe attention deficit hyperactivity disorder (ADHD) qualify for the DTC. Besides the tax savings, it benefited the client in other ways. People with ADHD can have difficulty saving money due to impulsive control issues.
“Getting the money invested firsthand has helped re-enforce the savings habit for them and it can be very motivating,” he says. “They want to accomplish good things and experience feelings of strength and positive behaviour. What often comes with automation is a strong savings habit that can recapture and reinforce that same feeling.”
Jamie Golombek, managing director and head of tax and estate planning at CIBC Private Wealth in Toronto, suggests advisors and clients alike consult the Canada Revenue Agency’s (CRA) website for specifics on the types of qualifiers in various categories.
In a nutshell, the person must be unable to do specific activities, or doing those activities takes the person three times longer than usual. Also, the restriction of activities is present 90 per cent of the time.
Some qualifiers concerning mental disability are more complicated, but issues such as adaptive functioning, attention, concentration, goal-setting and memory are considered, Mr. Golombek says.
“It has to be a severe and prolonged disability in one or more of the various categories,” he says. “Your disability has to have a significant impact on your day-to-day life.”
Transferring amount and other benefits
The value of an approved DTC varies from province to province, Mr. Golombek says. For example, an Ontario resident could realize tax savings of up to $1,900 a year but for a resident in Alberta, that number goes up to $2,600 a year. Eligible DTC clients can use that amount to reduce their overall income taxes. In cases in which DTC clients don’t have sufficient tax payable, they can transfer their unused DTC to a supporting person, he adds.
The DTC is retroactive for 10 years assuming it’s not a new disability, Mr. Golombek says. Perhaps the client never got around to applying for the credit. In that case, the CRA would reassess the client’s tax return for up to 10 years. So, someone who resides in Alberta and qualifies for $2,600 a year in DTC could receive up to $26,000 in this circumstance.
Qualifying for the DTC also makes an individual eligible for even more benefits, such as the ability for the client or caregiver to set up a registered disability savings plan (RDSP), he adds. RDSP contributions can generate a maximum of $70,000 in Canada disability savings grants and $20,000 in Canada disability savings bonds.
Caval Olson-Lepage, CFP at Collabria Financial Services Inc. in Saskatoon, says if the caregiver is applying on behalf of a child under the age of 18, they may also qualify for the disability child benefit, which provides them with a monthly deposit based on their previous year’s income.
“That money can help with potential care such as extra medication the child may need,” she says.
Getting the conversation started
Ms. Olson-Lepage says it often falls on advisors to have the DTC conversations as some medical practitioners may not bring it up with all patients. After a discussion with a client during a financial planning review, she says the client applied with help from her doctor and got approved.
The client also received 10 years of retroactive payments, which she uses toward an RDSP. “It turned into a substantial investment for her,” she says.
Clients can apply for the DTC using a digital form. The client fills out the first part and then receives a code to provide to their health care practitioner, who will fill out the next portion of the application.
Mr. Golombek notes that most medical practitioners won’t fill out the application unless they really believe their patient has a chance.
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