The Difference the Canadian Disability Tax Credit Could Make to Your Life
Suffering from a long-term physical or mental disability is one the worst situations anyone can face. Most likely your condition causes limited mobility and near-constant physical pain. You may also find yourself unable to work, or at least work as much as you want to.
Being stuck at home most of the day can lead to depression, and disability-induced unemployment has serious financial costs. With you no longer receiving a full paycheck, you and your family may be having a difficult time making ends meet. Bills don’t stop coming just because you aren’t working.
If that sounds like your situation, the Canadian Disability Tax Credit can be the lifesaver you need. The program provides tax relief in the form of an annual deduction, potentially putting thousands of dollars back into your pocket.
How the Canadian Disability Tax Credit Works
The Tax Credit is a deduction that is added to the annual tax return of all those who qualify. You should submit the application prior to filing your taxes each spring. That ensures that it is processed on time to be added to your standard return. (Learn more about the Disability Tax Credit Form here).
Eligibility is defined according to two criteria: the severity and length of the disability. In order to be considered “severe,” the condition must be demonstrated by a licensed practitioner to significantly impair your ability to perform basic tasks. Read our disability tax credit eligibility guide.
If a series of tasks takes at least three times as long to complete than what is considered normal, the condition qualifies as severe. Another criterion is whether it requires therapy on a regular basis (defined by three times per week or more).
Then, the condition must be “prolonged.” That is easier to define – it must be shown by a doctor to have lasted or be expected to last, for one calendar year or longer. Make sure to consult with a doctor before submitting your Disability Tax Credit application.
What the Canadian Disability Tax Credit Can Do For You
The Tax Credit is a cash benefit that comes in a variety of forms. Here are the different ways in which you could benefit:
- Annual Tax Credit – If it looks like the above criteria apply to your case, you can then consider how much benefit you’re entitled to. The size of the credit is determined by a simple formula: (Appropriate Tax Rate Percentage) X (Base Amount + Supplementary Amount). The appropriate tax rate percentage is 15 percent. The base amount is offered to everyone who qualifies as disabled, with the supplementary amount added to cases in which the applicant is under the age of 18. If you qualify for both the base amount and supplementary amount, your annual tax credit will be the following: 15 percent of $7,766 + $4,530, so $1,845.
- Lump Sum – While the annual tax credit may seem modest, you might be eligible to receive a lump sum, provided you can prove that you have a chronic disability that will affect you years into the future. You may have an incurable condition like rheumatoid arthritis, for example. Provided your doctor fills out and signs the necessary paperwork, you could receive thousands of dollars in lump sum credits. Some individuals have received up to $30,000 this way.
- Credit for Previous Years – Let’s say that you’ve suffered from a debilitating condition for several years but are just applying for the Canadian Disability Tax Credit for the first time. You might be surprised to learn that you can apply to receive a credit for previous years as well, provided you can demonstrate that your disability commenced prior to the period you’re applying for. This is another way to turn the $1,845 annual benefit into thousands of dollars, so when submitting your Disability Tax Credit application, don’t neglect to claim for past years.
- Assistance with Day-to-Day Expenses – Regardless of the amount you receive, the tax credit comes as a cash sum. You can then use it to cover any expenses that arise, whether that means paying for groceries, putting gas in the car, paying rent, or covering heating and electricity bills. Perhaps the biggest problem with being physically disabled is struggling to make ends meet on a daily basis. Fortunately, the tax credit is designed to provide assistance with that very problem.
- Enrollment in the RDSP – Being accepted for the Disability Tax Credit automatically makes you eligible for the Registered Disability Savings Plan (RDSP), a separate assistance program offered by the Revenue Service of Canada. The RDSP provides each recipient with a $1,000 annual savings bond (which is indexed to the rate of inflation), which you can continue receiving each year until you’ve either reached the limit of $20,000 or the age of 50. By combining the Canadian Disability Tax Credit and the RDSP, you can cover short-term costs while saving money for the future!
- Transfer Tax Credit to a Relative – You may not be directly eligible for the disability tax credit if your income is too low to have taxes payable. That’s actually no problem because you can opt to transfer your credit to a relative, as long as they provide you with personal care or financial assistance. This means that even if you’re unable to receive the tax credit on your own behalf, your family can still get the assistance it needs.
It’s hard to find reasons to be optimistic when suffering from a physical or mental disability. But the Canadian Disability Tax Credit can improve your situation in a lot of ways, putting cash in your pocket today as well as helping secure your future.
If you’re disabled and want to capitalize on the tax credit, you’d be well-advised to get in touch with an agency specializing in cases like yours. The first number you should call is Disability Credit Canada, based in Toronto.
We can advise you regarding eligibility and the amount you can receive, and can even assist you in submitting the Disability Tax Credit application.