Disability Tax Credit (DTC) & Benefits
As explained by the Government of Canada, the Disability Tax Credit (DTC) is a “non-refundable tax credit that helps people with disabilities, or their supporting family member, reduce the amount of income tax they may have to pay.” For people and families, the DTC is an important benefit. However, navigating the application process can be challenging. At Padgett, we have the simple mission of helping clients solve problems and protect their financial interests. Here, our advisory team provides a guide to the most important things that you should know about the DTC tax credit and related benefits in Canada.
How to Apply (or Re-Apply) for the Disability Tax Credit
The Disability Tax Credit application process is administered by the Canada Revenue Agency (CRA)/ The key statute for the program is Income Tax Act, s. 118.3. To qualify, a person must have a severe and prolonged impairment in physical or mental functions. They must also be certified by a medical practitioner. The application is made using Form T2201 (Disability Tax Credit Certificate). Notably, there are two main parts to this application:
- Part A, completed by the taxpayer or supporting family member; and
- Part B, completed by a qualified medical professional.
Once submitted, the CRA will review the file and may request additional medical documentation before issuing a determination. If approved, the credit can often be applied retroactively for up to ten years, resulting in substantial tax relief. If denied, the applicant has the right to request a review, file an objection under Section 165 of the Income Tax Act. The applicant also has the right to re-apply with additional supporting evidence.
Note: Re-applications are common. Issues can arise for a wide range of different reasons. Though, an experienced financial advisor can help you put together the strongest initial application.
Understanding the New Canada Disability Benefit: Who Qualifies?
Eligibility for the disability tax credit can be a complicated, sometimes even contentious issue. In 2023, the Canadian Parliament enacted a new law called the Canada Disability Benefit Act. Along with other things, that law created a new income-tested benefit intended to reduce poverty among working-age persons with disabilities. The structure of the Canada Disability Benefit (CDB) now operates similarly to the Guaranteed Income Supplement.
Eligibility is linked to approved status under the Disability Tax Credit program. In other words, obtaining and maintaining DTC approval is a gateway requirement. The CDB is designed to “top up” income. It fills gaps not covered by provincial/territorial disability assistance. The amount payable will depend on household income thresholds set out in forthcoming regulations under the Act.
Note: Provincial programs vary. Applicants need to be aware of any local regulations.
Expired Disability Tax Credit? Steps to Renew Your Application
If a disability tax credit has expired, there are options available to get it started again. The CRA typically approves the DTC for a fixed number of years. It depends on the nature of the disability. For permanent conditions (such as blindness or certain developmental disabilities) approval may be granted on an indefinite basis. With that being said, for conditions that may change over time, approval is often time-limited (three years to five years is the most common). Once the approval period expires, the credit is no longer automatically available. To renew, the taxpayer must submit a new Form T2201, including an updated medical certification. The renewal process should be started well before the expiry date to prevent gaps in eligibility that could impact access to associated programs such as the RDSP.
The Parents’ Guide to Claiming Disability Benefits for Children
Parents and guardians play a key role (even the key role) in ensuring children with disabilities access the full range of tax credits and benefits that are available under federal law. A child who qualifies for the Disability Tax Credit can unlock multiple advantages:
- Transfer of the DTC: Because a minor child does not typically pay income tax, unused portions of the credit can be transferred to a supporting parent or guardian under s. 118.3(2). That matters a lot because it reduces the family’s overall tax liability.
- Child Disability Benefit (CDB): Separate from the Canada Disability Benefit for adults, this is a monthly tax-free payment It supplements the Canada Child Benefit (CCB) for families caring for children under 18 who qualify for the DTC.
- Registered Disability Savings Plan (RDSP): Finally, parents can establish an RDSP for a child with an approved DTC. There are some government matching grants and bonds. Contributions grow tax-deferred and withdrawals are structured to provide long-term security.
Regardless, the application process begins with obtaining DTC approval for the child. As noted previously, that application always needs to be supported by medical certification. Families should also review coordination between the DTC and provincial child-disability assistance programs. An experienced financial advisor can help you prepare all of the documents and records you need.
Why Trust Padgett for Help With the Disability Tax Credit and Benefits
Do you have questions or concerns about the DTC or related benefits? At Padgett, we have the professional experience that you can rely on. Our team is committed to providing reliable guidance and support to people and families in Canada, including those who are supporting a close loved one who is disabled. It is important that you are in the best possible position to take advantage of the DTC and all other potential benefits. Our Canadian financial professionals can help. It is the mission of our tax team to help people secure the greatest possible tax credit and disability benefits.
We are Financial Professionals that Canadian Families Can Trust
At Padgett, we provide financial guidance and support to people, families, and small businesses. If you have any questions or concerns about the disability tax credit or any related benefits, we are here to help. Contact us to find the nearest account to you to arrange your completely confidential, no obligation initial consultation. Our financial advisors provide services throughout all of Canada.