Finance

McBride: Disability tax credit covers broadened list

You don’t need to be bed-ridden or blind to qualify for the valuable Disability Tax Credit (DTC). People who have a broad range of mental and physical impairments may qualify. The DTC is worth up to $2,226 of tax savings (using 2016 Saskatchewan rates). Because the DTC is a “non-refundable” credit, you only save tax if …

You don’t need to be bed-ridden or blind to qualify for the valuable Disability Tax Credit (DTC). People who have a broad range of mental and physical impairments may qualify.

The DTC is worth up to $2,226 of tax savings (using 2016 Saskatchewan rates). Because the DTC is a “non-refundable” credit, you only save tax if you have tax to pay.

What about disabled people whose income is too low to owe income tax? It may be possible to transfer the DTC to a supporting person such as a parent or an adult child who helps to pay for the disabled dependant’s food, shelter or clothing expenses on a regular basis. That helps the supporting person save tax.

Attendant care

Seniors living in retirement homes may be paying for assisted living services such as laundry, meal preparation and housekeeping. Once you are eligible for the DTC, you can claim the cost of such “attendant care” services as medical expenses. The management of the retirement home may provide an itemized annual receipt showing the eligible portion of the rent.

RDSP

Are you concerned about who is going to look after your disabled child after you die or retire? You can take advantage of some very generous government bonds and grants by using a Registered Disability Savings Plan (RDSP) to pay for your child’s future care. Before you can open an RDSP, your child must be eligible for the DTC.

Qualified Disability Trust

Do you know of someone who is a beneficiary of a testamentary trust (established by a will)? Is that beneficiary disabled? The trustee should ensure that the beneficiary is eligible for the DTC. Without the DTC, the tax rate for income taxed in the trust will jump to 48 per cent in Saskatchewan starting in 2016. However, with the DTC the beneficiary and the trustee can jointly elect to have the benefit of graduated tax brackets, which would mean paying tax at only 26 per cent on the first $44,601 of income.

How to apply

To apply for the DTC, search online to obtain a copy of the T2201 Disability Tax Credit application form.

Note that this DTC application form was greatly simplified in January. According to Planned Lifetime Advocacy Network (PLAN), the CRA broadened the definition of disability to be more inclusive of mental illness and more in line with provincial eligibility criteria.

Take the T2201 form to your family doctor. Once it’s completed, mail it to the Canada Revenue Agency (CRA). Note that the newly revised six-page application form no longer contains all the helpful examples that used to be in the old 12-page form. However, you can still find examples, along with instructions and definitions, in the new Disability-Related Information guide (RC4064) released in January.

The CRA will provide income tax refunds if you missed making the DTC claim on prior years’ tax returns. Refunds can be worth roughly about $2,000 per year for a Saskatchewan resident. You no longer need to submit prior-year T1-Adjustment requests, because the new application form has a single check box to automatically request tax refunds for all applicable years.

E-filed returns

In previous years, whenever a tax preparer e-filed a return that included a disability amount, the return would have been rejected immediately if the CRA did not have a previously approved T2201 application form on file. Starting with 2015, the CRA will accept the return with the DTC claim but will not begin assessing it until the T2201 has been processed. It usually takes several months for the CRA to approve eligibility for the disability tax credit.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.

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