Disability Credit Where Credit Is Due
By Becky Turcotte, CPA, CA
Having a child with disabilities presents different challenges that parents with a child without a disability do not face. The Canadian Income Tax system provides some financial assistance to help with the challenges.
Canada Revenue Agency (CRA) defines being disabled as “having severe and prolonged impairment in physical or mental function.”
In order to qualify for disability credits, the individual has to be severely impaired for a prolonged period of time.
Severe impairment means you are unable to perform basic activities of life, or it takes you an “inordinate” amount of time, generally meaning that it takes three times longer than usual to perform the basic activity. These basic activities include things such as speaking, hearing, walking, elimination, feeding, dressing, etc. This also includes having the mental functions necessary for everyday life.
Prolonged impairment is simply defined as having the impairment last, or be expected to last, continually for more than 12 months.
For example, a child confined to a wheelchair would be considered disabled because they are unable to perform the basic life activity of walking and would be unable to do so for more than a 12 month period. The same could go for a child with mobility issues if it takes an “inordinate” amount of time to perform the basic life activity of walking compared to what is considered typical, and these issues will persist for longer than a 12 month period.
If your child meets these criteria, and a qualified medical practitioner verifies it, you should complete a T2201 Disability Tax Credit Certificate form to submit to CRA. Medical doctors, optometrists, and audiologists are just a few of the medical practitioners permitted to verify the T2201. The full list of qualified medical practitioners is available on CRA’s website.
Once CRA approves the Disability Certificate, you become eligible for various tax credits and programs designed to assist you. CRA will grant credits for up to 10 years back for any disabilities certified by a qualified medical practitioner. Credits can be granted indefinitely going forward. You are able to adjust your tax returns to account for the additional credits and deductions available as a result of the disability.
Each disabled individual is entitled to a tax credit which can be used to reduce their taxes payable in a year. In 2013, the credit was worth $7,697 which translates in Ontario to a potential $1,540 reduction of taxes. Because children do not generally have taxes payable, the credit is transferable to a parent, or any individual by whom the child is claimed as a dependent.
You may already be familiar with the tax credits for medical expenses incurred during the year. Being the parent of a child with a disability allows you to deduct some less common expenses you may incur as a result of the disability. Some of these less common expenses include, but are not limited to:
- Tuition for specialized schools;
- Reading services; and
- Sign language interpretation services.
Fitness and arts program credits exist for all children, abled or disabled, enrolled in qualified programs. However, the Disability Certificate entitles you to claim an additional $500 of expenses for each of those programs. This generates an additional tax savings of $200.
Additional child care deductions, as opposed to credits, are available for disabled children since the cost of required care is expensive compared to that of a typical child. In some cases you can continue to claim child care expenses even after your child turns 18 compared to the usual 16 years of age. The maximum amount you can deduct is $10,000 annually, compared to a maximum of $4,000 to $7,000 for parents of a child without disabilities.
Long-Term Savings Opportunities
Besides the additional tax credits and deductions, there are long-term savings opportunities available for children with disabilities.
Retirement Disability Savings Plan (RDSP)
An RDSP is a savings account that can be opened by a parent, or guardian, on behalf of a beneficiary who is disabled and under the age of majority. If the beneficiary is over the age of majority, they may open the account themselves.
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.
Contributions are made to the plan for the long-term benefit of a disabled person. Similar to a Registered Education Savings Plan (RESP), there is no annual contribution limit to contributions, only a lifetime maximum of $200,000. The contributions are not tax deductible, and earnings are taxed when withdrawn by the beneficiary.
Canada Disability Savings Grant (CDSG)
Canada Disability Savings Grants are available from the government to contribute to the RDSP. The government will contribute anywhere from $1 to $3 for every dollar you contribute up to an annual maximum of $3,500, and a lifetime maximum contribution of $70,000. The amount the government contributes depends on your income level if the child is a minor, or the child and their spouse’s income once they reach the age of majority.
Canada Disability Savings Bond (CDSB)
If you have an RDSP account and your family income is less than $42,500, the government will give you up to $1,000 each year the account is open, up to a lifetime maximum of $20,000. The amount the government will contribute depends on the family income.
If you are the parent of a child you believe would qualify for the credits, deductions, and programs discussed in this article, taking advantage of the tax-saving opportunities available to you can help significantly reduce the financial strain of the disability.
Contact your tax advisor for more details about this complex issue.