When you’re out of work, you need all the money you can get, and need to watch every penny you spend. You go to restaurants less frequently, and have less discretionary money to spend. But when you’re out of work because you’re disabled, the situation is even worse because you now have special needs and require special care to help manage and treat your condition. In a situation like this, a disability tax credit through the Canada Pension Plan (CPP) may be just the ticket you were looking for.
Are My Disability Benefits Taxable?
If you qualify for financial assistance or other benefits from the Canadian government, whatever you receive is considered taxable income, meaning you have to pay taxes on it but this is where a disability tax credit comes in handy. Extra benefits you receive through the CPP could mean you may owe taxes when you file your next income tax return, or you could have the amount payable in taxes automatically taken out from your monthly CPP payment instead of having to pay a large sum at the end of the tax year.
What Makes the Disability Tax Credit Good
Tax credits aren’t just for the wealthy, and can be realized any number of ways. For instance, if you make donations to a charitable organization, you can often “write” a percentage off when you file your income taxes. If you have certain work or medical expenses, these can often be deducted. People who find themselves in need of financial or other assistance and receive benefits can apply for the Disability Tax Credit.
The Disability Tax Credit is managed by Canada Revenue Agency and is a non-refundable tax credit that people who meet eligibility requirements can claim on their income tax each year. What this does is reduce the amount of tax that has to be paid on your benefits because, essentially, is reduces the amount of taxable benefits you’ve collected in the previous tax year.
Determining eligibility can be a rub, especially for a disabled person who’s been out of work for an extended period of time. Because according to the Canadian government, qualifying for a disability tax credit means:
1. You have paid enough into the CPP over the course of your working life since age 18. Basically, you need to have made enough contributions to the CPP in four of the last six years, or enough over a 25 year period including three of the last six prior to becoming disabled.
2. You are actually disabled. Qualifying for a disability tax credit also means your disability is severe and prolonged, as decided upon by a medical adjudicator, a person who will review your disability, medical records, and other documents.
Finally, if you want to take advantage of this disability tax credit, you have to file a special form with Canada Revenue Agency called Form T2201, Disability Tax Credit Certificate, which needs to be validated by a doctor. You can find the form here.
If you’re in need of help, it’s available through the Canada Pension Plan and its disability tax credit, so contact Service Canada if you have questions.
In need of that extra boost? Give us a call today for a free consultation and we’ll be sure to help you every step of the way!