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Canadian Disability Tax Credit & CRA debt forgiveness

Posted on 6 March 2024

Written by Trevor Pringle

Tax season is nearly upon us in Canada, and it is so important to claim every tax credit you can. It can help to reduce your overall tax bill, and can even sometimes result in a generous refund. If you are a Canadian with a disability, you might meet the necessary criteria for the Canadian disability tax credit. It is no secret that individuals with disabilities face unique financial challenges. The Canadian government, recognizing these hurdles, established the Disability Tax Credit (DTC) to provide financial assistance to eligible individuals. What is surprising is that it is a credit that many Canadians do not realize they might be eligible for, despite its potentially generous savings. In addition, the Canada Revenue Agency (CRA) offers debt forgiveness programs to alleviate the burden on those facing financial difficulties. In this article, we share all you need to know about the Canadian Disability Tax Credit, the eligibility criteria, and the possibilities of debt forgiveness through the CRA.

What is the Canadian Disability Tax Credit?

The Disability Tax Credit (DTC) is a non-refundable tax credit designed to assist individuals with disabilities, or their supporting family members. To qualify for the DTC, you need to meet certain criteria outlined by the CRA. Eligibility is generally based on the severity and duration of the disability, requiring the completion of the Disability Tax Credit Certificate (Form T2201). The DTC is available at both a provincial and federal level, and provides financial relief by reducing the amount of income tax owed by the qualifying individual or their supporting family member. It covers a broad range of physical and mental challenges, from mobility issues to learning disabilities. The ultimate goal of the DTC is to make tax fair between Canadians with disabilities, and those without. Those with disabilities will face more expenses throughout their lifetimes, and so the DTC is a valuable source of financial relief via a tax return. Once approved, the DTC can open the door to other benefits, including the following:

  • The Registered Disability Savings Plan (RDSP) – allows eligible individuals to save for the future without affecting other government benefits
  • The Child Disability Benefit – offers additional financial assistance for families caring for a child with a disability
  • Canada Workers Benefit Disability Supplement – provides additional financial support to individuals with disabilities who are part of the workforce, offering a supplement to their income through tax credits and benefits
  • Multigenerational Home Renovation Tax Credit – the Multigenerational Home Renovation Tax Credit is a government initiative aimed at encouraging home renovations to accommodate the needs of multiple generations living together

Each of these programs aim to enhance the overall financial wellbeing of individuals with disabilities and their families.

What is the eligibility criteria for the Disability Tax Credit?

Unfortunately, the criteria is quite strict. There is no one magic list of disabilities to help you qualify, instead there’s a list of criteria that you will need to assess and measure against your own condition. Here are the criteria:

  • You have a severe and prolonged impairment, certified by a medical expert
  • You are prevented from engaging in basic activities for at least a year (or it is expected to last for a year)
  • Your disability affects you all or most of the time (at least 90%)
  • Your disability interferes with your ability to perform basic activities even with the aid of medication, therapy, and medical devices
  • Your disability requires you to undergo life-sustaining therapy that takes substantial time away from your daily activities

How much do you receive from the Disability Tax Credit?

What you can receive from the DTC at a federal level is indexed to inflation, so each year it is updated. In the 2023 tax year, you are able to claim a maximum of $9,428 as a base amount if you meet the eligibility criteria. This amount can be transferred to an individual who might be your caregiver, or your spouse. If you have a child aged under 18, you might also be eligible for the supplemental amount under the DTC. The maximum amount for 2023 is $5,500. Each province and territory in Canada has its own base and supplemental amounts, which you are able to claim on your tax return much like you would with the federal amount. What is good to note is that you are able to claim the DTC in the current tax year, or indeed carry it back for up to 10 years in the past provided you are eligible for the credit. Amending your previous tax returns via the T1-ADJ form to add the DTC can result in a healthy amount of funds.

How do you apply for the Disability Tax Credit?

In order to apply for the DTC, you simply need to complete the Form T2201. This can be completed online via your CRA account, or you can mail the form to the CRA if more convenient for you. Here is how you apply for the Disability Tax Credit:

  • Complete the first section of the form (Part A) with your personal information
  • Have your medical practitioner complete the second part of the form (Part B). Here, they will need to prove that your disability is severe and hinders your daily activities
  • Once received, the CRA will review your application to determine your eligibility for the DTC
  • You will receive a notice of determination to let you know whether or not your application has been successful, as well as the amount of previous years you might be able to claim the DTC for
  • Once the CRA approves your application, you can claim the DTC on your tax return

What if your Disability Tax Credit application is rejected?

If the CRA rejects your DTC application, all is not lost – you may have some other options if you believe you were eligible for it:

  • Review the notice of determination and understand the reasons why the CRA rejected your application
  • Compare it to the information in your T2201 form to see if there are any errors
  • If you disagree with the decision made by the CRA, you can reach out to them to discuss your application
  • You can make a request to have your application reviewed again. Ensure you include any additional medical information that may have been missed before

What impact does the Disability Tax Credit have on the money you owe the CRA?

If you are facing high living costs due to your disability, the DTC can help to relieve some of the financial pressure. If you are out of work, and perhaps relying on government assistance programs for your income, tax season can be a difficult time. Say, for instance, you owe money to the CRA instead of being owed a refund. You may have earned funds by freelancing and made mistakes when calculating your taxes, or been pushed into a higher tax bracket. You might even need to pay tax on government benefits that you were not actually eligible for. In order to reduce your tax debt, the DTC can help, along with any other credits you might be able to claim. By maximizing your deductions, you can reduce the amount of tax that you owe.

What if you need more support outside of the Disability Tax Credit?

Tax debt can be extremely stressful, especially when the CRA are threatening to use their extensive powers to reclaim the money they are owed. Although helpful, the DTC may not be sufficient in providing the tax relief you might need. For Canadians facing financial hardship, the CRA offers debt forgiveness programs to help manage your outstanding tax debts. The CRA understands that unforeseen circumstances, such as job loss, illness, and other life challenges, can lead to financial difficulties. The CRA aims to assist those struggling to meet their tax obligations through various debt forgiveness options. One program is the Taxpayer Relief Program, which allows individuals to apply for relief from CRA penalties and interest charges on tax debts. The CRA assesses each application on a case-by-case basis, taking into account the circumstances that led to the financial hardship. Successful applicants may see a reduction or elimination of penalties and interest, providing much-needed financial relief. Additionally, the CRA may consider debt forgiveness in extreme cases where individuals are unable to pay their tax debts due to insolvency. In such instances, the CRA may accept a negotiated settlement, allowing you to settle their debt for a reduced amount. At Spergel, we would also recommend speaking to a reputable Licensed Insolvency Trustee to learn more about your tax debt relief options.

Canadian Disability Tax Credit – FAQs

Here are some of the most commonly asked questions we receive about the Canadian Disability Tax Credit and CRA debt forgiveness.

How much is the Disability Tax Credit in Canada?

The maximum Disability Tax Credit amount you can claim depends on the tax year and the age of the person with the disability. For the 2023 tax year, the maximum amount that can be claimed by an adult is $9,428.

How long does it take to get the Disability Tax Credit in Canada?

The CRA states that it will review your application for the DTC and make a decision within 8 weeks. If your application was incomplete for some reason, it could prolong the process. Approvals typically last for several years.

Is disability tax free in Canada?

The Disability Tax Credit (DTC) itself is not a direct cash benefit; instead, it is a non-refundable tax credit designed to reduce the amount of income tax that individuals with disabilities or their supporting family members owe. In other words, it can be used to lower the tax liability of the eligible individual or their supporting family member. While the DTC itself does not provide direct monetary assistance, it can open the door to other financial benefits. For instance, once an individual is approved for the DTC, they may be eligible for other programs and benefits such as the Registered Disability Savings Plan (RDSP) and the Child Disability Benefit (CDB). The RDSP is a long-term savings plan designed to help individuals with disabilities and their families save for the future, while the CDB provides additional financial assistance for families caring for a child with a disability. It’s important to note that the tax implications and benefits can vary based on individual circumstances, and seeking advice from a professional or contacting the Canada Revenue Agency (CRA) for specific details regarding your situation is recommended.

Does the Canadian Disability Tax Credit expire?

The Canadian Disability Tax Credit does not have a specific expiration date. Once approved, the DTC is generally valid indefinitely, as long as the individual’s medical condition continues to meet the eligibility criteria outlined by the CRA. The eligibility for the DTC is based on the severity and duration of the impairment in physical or mental functions. It is important to note that the CRA may periodically review or ask for updates on an individual’s medical condition to ensure that they still meet the eligibility criteria. In certain cases, if there is a significant improvement in the individual’s medical condition, they may no longer qualify for the DTC.

The Canadian Disability Tax Credit and CRA debt forgiveness programs are vital resources for individuals facing financial challenges due to disabilities or unforeseen circumstances. By understanding the eligibility criteria, application processes, and available support, individuals and their families can access the financial assistance they need to navigate these difficulties. If you have questions on the Canadian Disability Tax Credit, or are feeling concerned about the amount of tax debt you owe and think you need support, book a free consultation with a Licensed Insolvency Trustee at Spergel – we are the ‘get rid of debt’ people, and we’re here to help you.

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Trevor Pringle

Trevor B. Pringle is a Chartered Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on consumer proposals and small business debt. When Trevor isn't at the office providing debt relief to Canadians and corporations with his innovative problem-solving skills, Trevor enjoys regular trail runs in the Dundas Valley.

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