THE BENEFITS OF DISABILITY TAX CREDIT IN CANADA
The Disability Tax Credit (DTC) is designed, by Canada Revenue Agency (CRA) to offset the expenses of individuals living with a disability or their family members who are caregivers for them. CRA has put in place a list of criteria that an individual must meet to enjoy the benefits of accessing the Disability Tax Credit Program.
DTC is a non-refundable tax credit that is designed for individuals with physical and mental disabilities or the people who support them. It helps to reduce the amount of income tax that they have to pay. This amount includes a supplement for individuals less than 18 years of age and is collectable at the end of each year.
The DTC provides greater tax equity by creating some relief for disability expenses.
There is both a federal disability tax credit and a provincial disability tax credit available to disabled individuals. Provincial tax credits vary depending upon the province that the individual lives in.
The individual or support person is only eligible for the DTC if they fill out a Form T2201, Disability Tax Credit Certificate. Also, a doctor must fill out the form to testify that the individual lives with a severe and prolonged disability.
DTC offers a non-refundable tax credit of $8416 for the 2019 tax year, with a supplement for those individuals under 18 years of age up to (provided no child care expenses are claimed) $4909.
The DTC opens the doors to access many other benefits including:
Registered Disability Saving Plan
Enhanced Childcare Expenses
Enhanced Registered Education Savings Plan
Registered Retirement Saving Plan
Home Buyers Plan
Canada Caregiver Credit
Medical Expenses Credits
Refundable Medical Expenses Supplement
Eligible Tutoring Services
Home Accessibility Tax Credit
Preferred Beneficiary Election
Lifetime Benefit Trust
Qualified Disability Trust
The Registered Disability Saving Plan (RDSP) is a savings plan that is intended to help support persons to save for the long term financial security of a person who is eligible for the disability tax credit (DTC).
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 Contributions that are withdrawn from the fund are not included as income to the beneficiary when they are paid out of an RDSP.
Expenses that are eligible for the Enhanced Childcare Expenses Tax Credit are: expenses paid to a preschool, nursery or daycare centre, provided that they are not paid for a subsidized space for which a subsidy is granted to the childcare provider; additional expenses paid for overtime hours and public holidays; expenses for meals, if included in the standard cost of childcare services; expenses paid for a babysitter in the home; and expenses paid to a day camp, municipal recreation centre (during school vacations), summer camp or boarding school.
Income paid into an Enhanced Registered Education Savings Plan (RESP) is not taxable as long as it remains in the RESP. The support person pays into the RESP for the future education of a child.
The Registered Retirement Savings Plan (RRSP) allows the individual to save for their retirement by allowing a tax deductible contribution on a yearly basis. The contribution allowed varies, but is based on the individual’s income. The maximum contribution for 2019 is $26,500.
Also available is the Home Buyers Plan (HBP) which allows an individual to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for themselves or for a relative with a disability.
If an individual supports a spouse, common-law partner or a dependent who has a physical or mental disability and is 18 years of age or older, they may be eligible for the Canada Caregiver Credit. It is a non-refundable tax credit available if the spouse, common-law partner or dependent has an income between $7,005 and $23,391.
The Medical Expenses Credits that are available are: the Attendant Care Expenses & Disability Support Deduction. There are two options available when claiming attendant care expenses as a medical expense for a person who qualifies for the DTC: for a support person claim attendant care expenses as medical expenses, to a maximum of $10,000 per year, and $20,000 in the year of death; do not claim the disability tax credit and then there is no maximum on the expense limit. If the total attendant care expenses exceed $18,416 ($10,000 maximum attendant care expenses + $8,416 disability amount), it is better to claim the attendant care expenses as medical expenses and not claim the disability amount. In this case, the disability amount cannot be claimed by the taxpayer, nor can it be transferred to anyone else.
As an income reduction strategy, the Disability Support Deduction can be used by individuals who paid for attendant care expenses to: earn an income, attend an educational institution or do research for which a grant was received.
If the person with the disability is claiming the Disability Support Deduction and they have claimed medical expenses in on line 332 of Schedule 1 they may be eligible for the Refundable Medical Expense Supplement.
Should a doctor recommend tutoring related to a child's learning disability, the parent may be able to deduct the cost of a qualified tutor. This is then tax deductible and eligible under Eligible Tutoring Services on income tax forms.
Renovations to a home that make it safer and more accessible to a senior or a disabled individual may be income tax deductible up to $10,000. This credit is called the Home Accessibility Tax Credit.
A trust can be set up with the disabled individual as the Preferred Beneficiary Election. This individual must be eligible for a disability tax credit or an adult beneficiary for whom a dependant tax credit can be claimed by another individual because of the beneficiary's mental or physical infirmity. The amount claimed for a preferred beneficiary for a taxation year generally means the trust's accumulating income for the taxation year.
A Lifetime Benefit Trust is created in a Will. A Registered Retirement Savings Plan or a Registered Retirement Income Fund can be left on a tax-deferred basis to a Lifetime Benefit Trust. Mentally impaired and financially dependent children must be the sole beneficiary of the trust during his or her remaining lifetime.
A Henson Trust is not owned by the beneficiary, and the trustee has sole discretion in spending the trust money. It protects the assets of the disabled person, as well as the right to collect government benefits and entitlements. It may provide income tax relief by being taxed at a lower rate than the beneficiary's total assets.
The Qualified Disability Trust (QDT) is a trust that is set up in a Will and be set up as a result of an individual’s death. It is taxed at a graduated rate of income tax. The qualifying beneficiary must be eligible for a disability tax credit. Only one QDT is allowed per disabled individual.
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