TAX BREAK: Breaking down the disability tax credit

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You can claim a disability tax credit (DTC) of $8,113 for 2017 if you have a severe and prolonged mental or physical impairment. You can claim another $4,773 if you are under age 18 in the year.

Severe and prolonged have specific meanings. Impairment is prolonged when it lasts, or is reasonably expected to last, for at least 12 months. Severe means your ability to perform a basic activity of daily living is markedly restricted. Bear with me – we’re almost through with the definitions.

A basic activity of daily living means thinking and remembering; feeding or dressing yourself, speaking; hearing, eliminating (bowel or bladder functions); or walking. Markedly restricted means your ability to perform the activity is restricted for at least 90 per cent of the time. Or, it takes you an inordinate amount of time to perform such an activity. And, an inordinate amount of time means longer than usual when compared to normal people.

You don’t have to be blind, incapacitated, experience total hearing impairment or unable to speak to qualify for this claim. In fact, you may be gainfully employed and qualify for this claim. For example, if you have difficulty walking, for example, you have to stop and rest every 50 meters, or it takes you a long time to walk that distance, you are considered to have a severe physical impairment. Similarly, you also qualify if you have difficulty listening to a spoken conversation in a quiet setting, provided your hearing impairment is prolonged.

Likewise, a taxpayer is considered blind if, even with corrective lenses or medication, the visual acuity in both eyes is 20/200 or the greatest diameter of the field of vision in both eyes is 20 degrees or less.

You also qualify for the DTC is you require life-sustaining therapy to support a vital function, and you need this therapy at least 3 times per week and the therapy takes at least 14 hours per week. This disability targets individuals with diabetes.

The Canada Revenue Agency (CRA) has the thankless job of approving the DTC applications. Go too lax and the CRA can be accused of failing to enforce the tax rules, usually by the Auditor General of Canada. Go tough and the agency risks rousing the ire of sympathetic special interest groups and the affected taxpayers.

For example, back in May 2017, the CRA abruptly disallowed the DTC for taxpayers with type 1 diabetes on the basis the self-managed insulin treatments do not take at least 14 hours per week. Diabetes Canada pushed back and explained the “complexity, effort and time required to self-manage diabetes is significant, involving as many as 600 steps every day, with the insulin injection process alone involving 40 steps”. The CRA quickly relented and reinstated the DTC claims.

You have to get a medical practitioner to complete and certify your condition on the Form T2201. This form can be sent to the Canada Revenue Agency separately or together with your tax return. Once approved, the CRA will adjust your tax returns – if the disability started years ago – if you ask the CRA to do so on the form.

This credit is worth about $1,900 (NT resident) or $1,750 (NU resident) in tax savings in 2017 if you exclude the under 18 supplementary amount. This credit doesn’t actually provide you a cash refund. Rather, it reduces your taxes payable. If you don’t have any taxes payable, you can transfer this claim to your spouse. Similarly, a disabled child with no income may transfer this claim to a supporting parent.