In Canada, the Disability Tax Credit is one of the most overlooked and underused tax credits available to individuals. In the following, Senior Financial Planner Heather Holjevac explains what a disability tax credit is, and how it may benefit you.
“Invariably, many of us, myself included, get surprised by unplanned expenses over the year. My additional expenses usually revolve around the kids, however more and moreI am hearing of friends, family and senior clients whose budgets are being stretched due to costs related to a sudden illness or disability. A relative, who I have noticed having more difficulty with mobility over the past few years, was recently diagnosed with severe arthritis. With this comes the need for increased medication, physiotherapy, need for a walker and for assistance around herhome, to complete basic tasks.
The Disability Tax Credit and the disability amount is a non-refundable tax creditthat a person with a qualifying impairment can claim to reduce the amount of incometax he or she has to pay in a year. The credit, once approved by CRA, can also be transferred to a spouse or parent (if they are dependent on them for all or some of thebasic necessities of life – food, shelter or clothing) and carried back up to 10 years if anindividual qualifies. The refund or tax reduction is based on your tax payable and canbe worth up to a $2,500 tax reduction or refund for each year an individual qualifies.
How do you know if you are eligible? There are three conditions that must be met.
1) You must have a severe impairment in physical or/and mental functions or the cumulative effects of two physical impairments.
2) This impairment must be prolonged such that it has been persistent or will remain persistent for a continuous period of at least one year.3
3) A qualified practitioner needs to certify that your impairment is severe and prolonged by completing the Disability Tax Credit Certificate.
Once completed, the Disability Tax Credit application form should highlight and detail the effects of the impairment on your normal functioning. In recent years, the rules have changed to include additional conditions to the list o fthose that qualify, such as:
• insulin dependent Diabetes,
• life sustaining therapy, such as dialysis
• the cumulative effects of 2 significant restrictions or conditions, such as vision- speech- hearing- dressing- walking- feeding- elimination (bowel or bladder functions)- mental functions necessary for everyday life.
This could include the effects alzheimer’s, arthritis, anyone using a walker and thoserequiring Attendant Care at home or in a Retirement Home or Nursing Home.
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An additional measure in the June Federal 2011 Budget, is that it proposes to eliminatethe current $10,000 cap on the eligible expenses that can be claimed for other eligibledependents for the medical expense tax credit for other dependents.
While the process to qualify and receive the Disability Tax Credit can take 3 to 6months, it is a worthwhile pursuit. Once established, it can mean a lifetime of tax credits.”
Watch for a review of the new Family Caregiver Tax Credit that the Budget proposes tointroduce beginning in 2012 in an upcoming blog entry.