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January Newsletter for Seniors on Vancouver Island

Roy Summerhayes Seniors 101

Christmas is over so our income tax forms should be arriving soon, what a thought!! The article below was written for Seniors 101 by Lotar Maurer, CGA regarding Disability Tax Credits which I am sure most of us know little, nothing, about. Please read this carefully and consider whether you, or others you know, could benefit from it.

Disability Tax Credit

In my personal experience, and that of many advocacy groups for persons with disabilities, the Disability Tax Credit (DTC) is one of the least-well-known tax breaks available to many Canadians, and one that is significantly under-used. Even the government and the tax department admit that many Canadians who are likely eligible for it aren’t taking advantage of it.

Rather than discuss all the details of what it is, I’ll very briefly summarize the highlights, and then direct you to other sources for more detailed information. There simply isn’t room here for me to repeat basic information readily available elsewhere.

I believe I can offer more value by discussing, from my perspective of having dealt with many of these credits, some perspectives on the credit which are not addressed in the published literature.

First, I want to talk about what it is from a tax and social policy perspective, rather than from a tax rules perspective.

Canada’s government recognizes that persons with medical problems and disabilities face above-average costs of living. The DTC is one of many tax breaks intended to ease this extra-cost burden, particularly in an environment where broader social policy is unwilling or unable to directly fund the cost burden through direct medical or hospitalization payments. Specifically, the DTC is a tax credit available for persons meeting certain specific “disability” eligibility criteria – and here is where good policy runs smack-dab into the complicated tax rules!

First, it is important to understand that it is a credit available to reduce your income tax otherwise payable – it can not put money in your pocket if you pay no income tax, and it can not put more money back into your pocket than the income tax you do pay. And there is an annual limit to how much your tax is reduced; for about the past decade, that limit has been just around $1,400 per year.

Second, the eligibility criteria: here’s how they are defined (in part): the DTC is available to an individual who has “a [note: singular!] severe and prolonged physical or mental impairment” such that they are “markedly restricted” in one (note: singular!) of the activities of daily living, or who has one or more such impairments such that they are “significantly restricted” in two or more of the activities of daily living.

Whew! I’m certainly not much smarter after trying to digest that mouthful! Fortunately, you and I don’t need to interpret it. If you even think you might be eligible for the credit, ask your doctor. Your doctor will know, and in fact your doctor has to complete, verify and sign the application for the DTC. The application, when submitted to the tax authorities, is assessed by medical personnel in their employ – but your own doctor is the source of the original definitive medical opinion. In my experience, very few applications are rejected once approved by the required medical practitioner.

And I mean approved legitimately and in good faith by the medical practitioner – recent crackdowns by the tax authorities on fraudulent applications supported by bogus medical approval should not worry you if your doctor is above-board and trustworthy.

Finally, it’s worth emphasizing that eligibility for the DTC is required in order to be able to take advantage of other medical/disability-related tax benefits, particularly for claiming credits for nursing home care. There are complicated rules surrounding the interaction of several related tax credits or benefits, and eligibility for DTC is often a cornerstone of those rules.

OK, here’s where you go for more info: On the internet, start at CRA’s helpful website here http://www.cra-arc.gc.ca/disability/, and follow the links as far as you like. No internet? Make an appointment with your accountant. This subject does get complicated, so there will probably be a fee for anything beyond a brief meeting to tell you the basics and/or give you an application form.

Now its time for a couple of non-tax / non-technical observations, or stuff you won’t find on the CRA’s website.

If you haven’t been claiming the DTC but now find you are indeed eligible, there’s a chance you might have been eligible for it earlier. When your doctor certifies your disability, he also has to indicate how long you have had it. And if it has existed for several years, you can make application for it retroactively – in fact, up to 10 years back! But a word of caution – discuss with your accountant whether there might be any hidden problems lurking in your past tax history that might be discovered in the process of filing the DTC retroactively.

Your DTC application should not be filed with your tax return. You can’t actually claim the DTC on your tax return until it’s been approved by CRA, which typically takes up to 3 or 4 months. Better to make the application way early, say by December, or after June. Otherwise it gets in the way of tax filing season and the delays in approval are longer. Remember, you can always adjust prior years’ tax returns retroactively.

If you search the internet for information, you will no doubt find many commercial services offering to guide you through the entire process of determining eligibility, filing the applications, filing prior year tax return adjustments, and monitoring their approval process – all for a contingency fee (I’ve seen it up to 30-40%) of your refund. Most of these services are reputable (do your homework — a few shady ones have uncovered and charged by the tax authorities!), but they are expensive. A reputable accountant will charge you a reasonable fee for doing the same thing, but it should be less than the contingency fee charged by the commercial services, especially if several years retroactive are involved. The downside is that an accountant will charge a fee for his time even if the application is denied, although a reputable accountant will not pursue obviously doubtful claims on your behalf.

In my years of dealing with DTC claims for eligible persons, I have frequently encountered two specific circumstances that are worth highlighting.

One is that an eligible “impairment” (i.e. one that makes the taxpayer eligible for the DTC) may not necessarily be evident to an outsider. This may be particularly so if the person’s condition is one that may cause them some embarrassment if it were more evident. I make it a practice to raise the DTC issue with my clients, if I see obvious signs such as blindness, frailty, difficulty walking, carting around an oxygen tank, etc. But I’ve been caught unawares a few times over the years because I don’t see, don’t think to ask, and the client doesn’t know to volunteer, that they are on dialysis, or have bowel or bladder function problems. Make it a point for you – or a family member or trusted friend – to make yourself aware of ALL the potential “impairments” that might make you eligible.

Closely related to that are impairments “in performing the mental functions necessary for everyday life”. These are often not used to trigger a DTC application because, surprise!, the mental functions are impaired and get in the way of making the application! That’s where a family member or trusted friend has to step in and help you.

But more important is the embarrassment factor – people are rarely shy about admitting they have difficulty seeing or hearing or walking, much more so about whether they have to carry a colostomy bag, but very often don’t want to admit publicly, and especially to their accountant, that they have trouble remembering or that they’re afraid they’re losing some mental abilities.

My advice here is that the DTC application can readily be kept private. Really, no-one but you (or maybe your family member or trusted friend) and your doctor (well, and the folks at the relevant tax department) has to know the circumstances surrounding your application. Your doctor can readily complete and mail the DTC application on your behalf, and all your accountant and others will ever know is that it was approved, but never on what basis.

I wish for everyone to be healthy and well – but if that isn’t always possible, I at least wish everyone to get all the tax breaks the law entitles them to for being less than 100% healthy and well.

Lotar Maurer, Certified General Accountant,
107 – 663 Beach Road,
Qualicum Beach, BC V9K 2H7
Email: lotar.maurer@islandcga.com
Toll Free: 1-866-352-9223
Phone: (250) 752-9223 Fax: 1-866-262-7365
www.islandcga.com/introduction.htm

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