What you didn’t know about the disability tax credit

What you didn’t know about the disability tax credit

It’s tax time again! This is the first in a series of blogs giving you easy-to-understand information about tax issues for Canadians. All information has been vetted by a Chartered Accountant. If you are looking for a general overview, read our post on tax benefits for people with dementia.

The disability tax credit is an often-overlooked credit that all people with dementia should be receiving. Here’s a basic outline of how it works:

  • To be eligible for this credit, you must submit the T2201 form to Canada Revenue Agency. A medical professional, usually a doctor, must certify the form.
  • The credit is worth just under $8,000 on paper, giving it a value of $1,500 or more in real money depending on the province in which you live.
  • The credit is non-refundable, meaning that once your income tax  is zero, you cannot receive any more money from it that year.
  • However, the credit can be transferred to a spouse or another family member who is considered a supporting individual. So if your tax is zero, your caregiver or family member may be able to receive any unused tax benefits.

 

But perhaps the most overlooked and crucial detail of this credit is that it may be claimed retroactively, up to as many as 10 years.  That can add up to a major tax refund if your doctor determines that the prolonged impairment started in an earlier year. For example, if your family member had symptoms that fit the CRA’s requirements in 2010, you may be able to recover up to $1,500 from each year based on taxes paid in each of the prior years.

It’s possible that you were eligible for the tax credit before a diagnosis of Alzheimer’s disease was made if  your family member  was already experiencing the symptoms that fit the requirements. That is, the person must have one or more severe and prolonged impairment in physical or mental functions that cause a “markedly restricted ability to perform a basic activity of daily living.” A basic activity of daily living is defined as:

  • Mental functions such as memory, problem solving, judgement and functioning in an environment
  • Feeding or dressing oneself
  • The ability to communicate in a quiet setting with the affected individual (both speaking and listening skills)

 

So you are eligible to apply for the for tax credit whenever you feel that your family member has met one or more of these requirements. The form T2201 Disability Tax Credit Certificate, has two parts. Part A is completed by you and Part B by your doctor. The form must either be filed before the filing of your income tax return for the year or with your return .You will be eligible for the Disability Tax Credit only if Canada Revenue Agency approves this form and advises you in writing

To request any credit from previous years, you also need to prepare  a T1-ADJ T1 Adjustment Request for each year you were entitled to the benefit.

Please note: The rules for the disability tax credit and transfers of unused credits are complex, so please consult with a qualified tax professional when seeking to claim any current or retroactive benefits.

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