Disability Tax Credit Versus CPP Disability Benefits
It’s not uncommon for people exploring disability benefits to confuse the Canada Pension Plan (CPP) disability benefits plan with the federal Disability Tax Credit (DTC) but they are two entirely separate entities. The question we always find ourselves asking or being asked is, “Which one should I apply for – the Disability Tax Credit or CPP Disability Benefits?”
The CPP is administered by the Human Resources and Social Development department of the government and is the largest long-term disability pension plan of its kind in the country. The Disability Tax Credit program on the other hand is run by the Canada Revenue Agency and is a tax relief program. While both programs seek to aid the disabled in their fight to retain financial and social dignity they go about it in different ways which we’ll get into below.
It’s important to note that while the CPP disability benefits and Disability Tax Credit are 2 different kinds of benefit programs they are neither mutually exclusive, nor does participation in one necessarily guarantee you acceptance into the other.
CPP Disability Benefits or Disability Tax Credit?
The CPP Disability Benefits Program
The CPP’s disability benefits program is a contributory benefits program intended to help those unable to work due to a “severe and prolonged” disability.
- The CPP defines “severe” as meaning any impairment that prevents you from being able to work.
- The CPP defines “prolonged” as a disability that has lasted or is expected to last for at least 12 consecutive months, or one that is diagnosed as terminal.
Participants receive a monthly payment that is determined in part by the amount of contributions they made to the CPP fund during prior working years. Although there are some exceptions, for the most part if your level of contributions to the CPP fund does not meet statutory minimums you likely will not be eligible to receive disability benefits under the CPP plan.
The two kinds of disability payments CPP will make are:
- Standard CPP disability benefit payments – This taxable monthly benefit will, as mentioned, be different for different people; depending on their contributions to the CPP fund during their working years.
- The CPP children’s benefit – A taxable flat rate payment made to dependent children who are less than 18 years of age or between 18 and 25 and enrolled full-time in an accredited educational institution.
The Disability Tax Credit
The DTC by comparison is a different type of financial assistance program. Administered by the Canada Revenue Agency the DTC takes the form of income tax relief for qualifying disabled citizens. You may also qualify for retroactive relief which is available for up to 10 years.
If you are judged to meet DTC guidelines for a “severe and prolonged” disability you will be given tax relief in order to free up money to help you deal with the extraordinary expenses that typically accompany a severe disability. If determined to be eligible for the DTC you could receive as much as $30,000 in annual relief. Other details include:
- DTC reduces federal and provincial tax liability in order to free up income for health-related expenses.
- DTC benefits are applied for by your filling out Part A of Form T2201 and your doctor filling out Part B.
- Eligibility will be based largely on the information on form T2201.
- DTC credit can be transferred to a spouse or common-law partner.
- Form T2201 can be submitted at any time of the year.
If you are burdened with extraordinary health costs related to your disability the Disability Tax Credit can go a long way toward putting you on the road to financial recovery. Qualifying for the DTC can open doors to other benefit programs as well although your acceptance into those programs is not guaranteed.
Crossover Disability Benefits Are Possible
For those wondering whether they can simultaneously receive assistance from both the CPP Disability Benefits and Disability Tax Credit programs the answer is “yes”’ (although again acceptance in one program does not guarantee acceptance into the other).
In fact one can be used to optimize the results of the other. For example; should you receive $1,200 per month in taxable benefits from the CPP disability benefits program and then be accepted into the DTC program any taxes you paid on the CPP money you received would likely be returned to you. By combining the CPP and Disability Tax Credit programs then your CPP benefits would become effectively tax free.
Help is Available
If you’ve been beset by a disability you believe to be both severe and prolonged don’t hesitate to apply for the Disability tax Credit or CPP Disability Benefits program or both. Either one will by itself provide a meaningful level of assistance. Working together they could set you firmly on the path toward financial stability, perhaps for the first time in years. You can also find out more information about CPP Disability Benefits Application here.
Disability Credit Canada can help you make sense of your options and has a laudable record of shepherding our clients’ applications to both the CPP and Disability Tax Credit programs through to successful outcomes.