By Heather Compton
This story started with my Uncle and his astute accountant. She told him he may qualify for an additional tax credit based on his “disabilities”. My Uncle was incensed – “I’m certainly not disabled” he huffed. When his accountant made it clear there was money on the line he relented and agreed to hear her out.
Age Brings Challenges
Regretfully, as we age our visual acuity, hearing, mobility, and other aspects of daily living, including our mental functions may become impaired. Over time you or your relatives may become eligible for an often overlooked non-refundable tax credit – the Disability Tax Credit claimed on line 316 of our tax returns.
A non-refundable tax credit can only be used to reduce federal and provincial taxes payable to zero. If the credit is greater than your taxes payable the excess is not refunded to you but it can be transferred to a spouse or common-law partner.
It’s a generous credit, well worth investigating! In 2011, the Disability Tax Credit provided a federal non-refundable credit of $7,341 for tax savings of $1,101 for those who qualified. In addition there is a provincial component which varies by province. You can check the provincial credits at Tax Tips.ca.
Who Qualifies for the Disability Tax Credit?
CRA Form T2201 must be taken to a qualified practitioner who can certify the effects of your impairment(s). If your issue deals with hearing, the qualified practitioner will be an audiologist, vision – an optometrist and others as outlined on the CRA website. Medical doctors that know you and your health history are the best bet as they can certify to all impairments. There may be a charge to complete the application but don’t let that deter you. The credit is likely greater than any fee you may pay.
Once the application is completed and certified it must be sent to CRA for approval. You can apply for the credit at any time during the year but if you include it with a tax return during tax season the return will be held until the CRA determines your eligibility.
Once you are approved you need not file a T2201 again for future tax years (provided the impairment is not temporary) and may be eligible to claim the credit going back a full ten years, depending on when the impairment occurred. You are required to file a T1 Adj for each of the previous years you wish to have reassessed in view of the credit.
A Cumulative Challenge
If we are considered legally blind or have serious mobility issues such as being confined to a wheelchair or have really lost our marbles, we would likely acknowledge our affliction and view ourselves as markedly impaired or disabled.
Many, however, will fall into a grey area where we have some issues in two or more areas and the cumulative total of our smaller challenges may actually add up to a disability as defined by Canada Revenue Agency – that was the case with my Uncle.
The cumulative-effect criterion came into effect for 2005 and later tax years. It requires that you be significantly restricted in at least two basic activities of daily living or significantly restricted in vision and at least one other area.
Take the Test
The Canada Revenue Agency website asks if the impairment has lasted or is expected to last for a period of at least 12 months and if it restricts you in one or more of the basic activities of daily living all or substantially all of the time – even with the use of appropriate devices or medication.
CRA defines the basic activities of daily living as speaking; hearing; walking; elimination; feeding; dressing; and performing the mental functions necessary for everyday life.
There is no doubt that given the choice most of us would prefer to forgo the credit and maintain all our capabilities instead but with longer life spans we are likely to see an increase in those qualifying for the DTC.
I’m going to close this month’s article by reminding you that I’m NOT an accountant, just a frugal Scot with an interest in reducing taxable income! Very often our unique circumstances require us to seek an expert’s opinion and certainly in this arena expert tax advice can pay generous dividends.
About the Authors: Heather Compton has presented seminars on financial and retirement lifestyle issues for over 30 years. She retired as Vice President and Senior Investment Advisor with a major financial services company. Heather and husband Dennis Blas co-present retirement seminars for a variety of corporate clients and are the co-authors of Retirement Rocks! Canadian Boomers Invest in Life. You can find their book online or in independent bookstores. See more of their advice at Retirement Rocks.