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Disabled tax credits

New regulations for disability tax credit promoters

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Disabled tax credits
Living with a significant disability, whether physical or mental, isn’t easy. In many instances, that disability can prevent an individual from working, or limit the person to part-time work, both of which affect financial well-being. In addition, disabled Canadians often must incur expenses not faced by other Canadians in order to enable them to live as independently as possible.

The Canadian tax system attempts to mitigate the financial barriers and costs experienced by disabled Canadians by providing them with a specific non-refundable tax credit, known as the disability tax credit, or DTC. That credit, which is available at both the federal and provincial/territorial levels, is a significant one. For federal purposes, the DTC can reduce federal tax for 2014 by as much as $1165, while the amount of any provincial credit will vary by province of residence. .

In order to ensure that the DTC is provided only to those who genuinely qualify, Canadian tax law and administration impose some fairly stringent and detailed requirements. Anyone who wishes to claim the DTC must file a specific application with the Canada Revenue Agency (CRA) and await the Agency’s determination of whether they are eligible to claim the DTC, and whether that claim can be made on a temporary (i.e., for a specified time period) or permanent basis.

The application form which is filed with the CRA is Form T2201. The form has two parts, one of which is completed by the individual, and the other which must be completed by a physician or other health care professional. In order to qualify for the DTC, an individual must have a disability which is expected to last for at least 12 months and which significantly restricts that individual in carrying out the basic activities of daily living. Once the required Form T2201 is filed with the CRA, some period of time can pass before the Agency’s decision is made and communicated to the individual who made the application. Where that application is denied, the affected individual has the right to appeal.

The process of obtaining the right to claim the DTC is not simple, quick or easy, and the decision made by the CRA on a particular application can have a significant effect on the financial well-being of the disabled individual. However, many such individuals may have difficulty, for various reasons, in completing the application, or may not even be aware that they may be eligible for the DTC. In recent years, a number of businesses have been established which, for a fee, offer to prepare a DTC application for a disabled individual. Some of these businesses provide a valuable service for reasonable compensation. Others, unfortunately, do not. In some cases, unrealistic promises of huge tax savings are made, or significant charges are levied for work of dubious quality or value. Overall, the risk of exploitation of a vulnerable population is very real.

Acting on that concern, the federal government put forward legislation which will limit excessive fees that can be charged by any person or company for helping to prepare a DTC application, and which will impose financial penalties where that amount is exceeded. That legislation was passed by Parliament, and the federal government is now undertaking consultations to assist in drafting the regulations which will determine the charges which can be made by such promoters, and the penalties which can be levied when allowable charges are exceeded. Details of the legislation and the consultation process can be found at http://www.cra-arc.gc.ca/disability/.

While the new legislation will help to ensure that penalties will be imposed on unscrupulous individuals or companies who take unfair advantage of disabled individuals with respect to DTC applications, it’s always better to avoid being victimized in the first place. With that in mind, disabled individuals and their families who may be considering paying to have someone prepare a DTC application should consider the following.

Nobody—individual or company—can guarantee the success of an application for the right to claim the DTC, on either a temporary or permanent basis. As outlined above, the requirements which must be fulfilled in order to qualify for the DTC are very specific and very detailed. Each application is assessed on its own merits, and no one can guarantee in advance the outcome of that assessment.

Nobody has the ability to guarantee that a particular application will be treated as high priority, or expedited. All applications for DTC claims are considered as they are received, and the process of assessment generally takes at least several weeks. Any claims that applications prepared by a particular company will be considered before others (or that paying an additional charge can move an application to the top of the list) are simply false.

The DTC is a non-refundable tax credit, which means that it reduces federal and provincial/territorial tax otherwise payable. Some of the advertisements put out by promoters claim that a disabled individual can receive “thousands of dollars” from the government following a successful application for the DTC. The facts are, however, that claiming the DTC, or any other non-refundable tax credit, cannot create a tax refund or increase an existing one. It can only reduce tax which would otherwise be payable. It’s an important point because, in many cases, income amounts received by a disabled individual (for instance, monthly payments made by a provincial government to disabled individuals) are not subject to tax.

Some promoters may claim that it doesn’t matter that a disabled individual might not be able to make use of the DTC, in full or in part, because any amount not used by a disabled individual can simply be transferred to and used by another family member. However, while it is possible to transfer a DTC claim from a dependant, the rules governing the circumstances in which a transfer can be made are complex, and it isn’t possible to guarantee, without detailed knowledge of the specific circumstances and tax situation of an individual and his or her family, that such a transfer will be possible. The requirements for such a transfer are outlined on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/318/dpndnt-eng.html.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.