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Disability Tax Credit

For those who live with disabilities every day, the Canadian Disability Tax Credit is something to consider. Available to disabled persons as well as supporting family members and full time caregivers, it can be very helpful in offsetting the often-prohibitive costs of daily care. Rather than a regular monthly payment, such as would be received through OSDB or the Canada Pension Plan, this credit is applied against income tax, and when first approved for can be received as a lump sum payment that covers up to ten years retroactively.

The credit amounts to approximately $1165 per year, with an additional supplement of $680 for those under the age of eighteen. It differs from other provincial and federal tax credits commonly filed with a return in that it must be applied for prior to filing, and cannot be claimed until it has been approved by the CRA. Statistically, almost ninety percent of eligible applications are approved, and most candidates will receive their decision within eight weeks.

Offered to those whose disabilities are expected to last or has lasted twelve months or more, the Disability Tax Credit applies to those with physical and/or mental disabilities that have resulted in a marked and severe loss of the ability to perform normal, daily functions such as walking and talking, or for those with severe visual or hearing impairment.

Disabilities that fall into this category could include the following

  • chronic pain disorders
  • paraplegia
  • quadriplegic paralysis
  • hearing loss
  • debilitating mental disorders
  • etc…

In short any condition that gets in the way of performing simple daily tasks such as dressing or feeding oneself, taking medications or using the toilet may qualify. The degree of impairment is considered as well, and is defined as either markedly restricted or significantly restricted. In the case of ‘marked’ restriction, it is assumed that an inordinate amount of time is required to perform basic daily living activities at least ninety percent of the time, or that the disabled person cannot perform these tasks on their own. ‘Significant’ restriction implies that the applicant may not quite meet the definition of ‘marked restriction’ but is still substantially restricted most of the time.

The application form contains a self-assessment quiz that can help determine which category the applicant falls into, and should be completed by anyone who is considering applying for benefits under this program. But one thing you should keep in mind, even if you feel that you might not qualify, you should consider approaching one of the companies from the Association of Canadian Disability Benefit Professionals, National Benefit Authority the Company I founded, is the original founding member of this Association.

The application is in two parts, and it is necessary for a qualified physician to complete and sign the medical portion. Though the process may seem daunting, it is well worth the effort for those suffering with long-term issues. In fact, it is a requirement for certain other disability benefits, including the RDSP (registered disability savings plans), Canada Disability Savings Grants and Disability Bonds.

Those who receive ODSP or disability payments through the Canada Pension Plan, Quebec Pension Plan or WSIB (workman’s compensation) are not necessarily entitled to receive a Disability Tax Credit, as these programs all have differing criteria, such as the individuals ability or inability to work. The application is available as a printable PDF download or a form-fillable PDF which can be completed on line, and is also available in braille, large print and even MP3 audio for the visually impaired. Access the Disability Tax Credit application anytime by visiting the CRA website.

Consider Applying yourself, but if you feel the need to have a helping hand of a professional you are always welcome to use our free consultation service by National Benefit Authority.

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An RESP stands for a Registered Education Savings Plan, it is an account that is designated towards helping families and friends save for a child’s post-secondary education.

Education - Formulas on a blackboard.

Mistake #1 – An RESP is too risky of an investment for me

An RESP is not an investment, it is merely an account designated by the government as a plan to provide financial assistance to children attending post-secondary education. An RESP has several features which include additional contributions made by the government and tax efficient withdrawals.

Mistake #2 – There is no flexibility when it comes to making payments and choosing an investment

If you want full flexibility in controlling how much can be put into the account, and changing your level of payments over the years, you should stay away from “Group” RESPs and opt for a “Family” or “Individual” RESP. Family or Individual RESPs allow the contributor to control how often, and how much money is put into the RESP account. They also allow for a wide variety of investment types to be held in the account such as mutual funds, stocks or interest paying investments.

Mistake #3 – There’s a chance my child won’t pursue post-secondary education, I don’t want to lose all the money I put in.

Through an Individual or Family RESP Plan, you have the option of withdrawing the money contributed by you. Any money put in by the government will have to be returned back to the government. Contributors can choose to roll over the full amount remaining in the account to their RRSP without any penalty. If contributors wish to withdraw the money as cash, they will be subject to income tax on all withdrawals.

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RDSP Grants & Bonds

The steady increase in the number of the accounts opened in the seven years after the introduction of the Registered Disability Savings Plans (RDSP) in 2008, shows the potentials that these plans possess in making a difference for Canadians facing grave financial obstacles. As at the end of March 2014, over 78,000 accounts had been opened by Canadians out of an estimated 550,000 eligible Canadians. The current number of accounts represents only 14% of those eligible.

It’s usually a surprise to disabled people when they find they can get thousands of dollars even when they don’t make any form of contributions to their own plans, one recurring comment that all advocates hear is that “there must be a catch.”

What is an RDSP?

RDSP are assisted savings plans created particularly to give financial security to those with disability. It is similar to RESP, Registered Education Savings Plan, in that until withdrawal of funds, the growth inside the plan is allowed to grow sheltered from tax. Federal grants and savings bonds further boost contributions providing on a yearly basis, depending on income, up to $4,500 per year, up to a lifetime limit of $90,000.

Who is eligible?

Disabled adults can set up plans for themselves while parents or guardians of disabled children can set up plans for them, the applicants must meet 3 basic conditions to be eligible for an RSDP account. Applicant must be a Canadian resident with a social insurance number (SIN), eligible for the disability tax credit (DTC), ensuring that plans only get set up for those with a severe and ongoing physical or mental impairment and under the age of 60 as at the time of making the contributions. Only one RDSP account can be setup per person.

How do they work?

Once the RSDP account is set up for a beneficiary, provided the plan holder gives a written consent, anyone can make contributions to the plan. The rules allow the plan holder to strategically plan contributions in order to optimize matching government bonds and grants.

The government provides grant up to $3,500 yearly depending on how much is contributed and family income. A bond of up to $1,000 is added yearly for lower-income Canadians with RDSP, by the federal government. This money has to remain in the plan for a minimum of 10 years.

There’s a lifetime contribution limit of $200,000 aside bonds and grants, though, there are no annual limits on the amount that can be put into the plan. Dec 31 is the deadline for contribution each year. A tax-free rollover of company pension plan money, RRSP or RRIF to an RDSP can be arranged by parents or grandparents of a disabled child or grandchild when parent or grandparent dies.

What are the criteria for grants and bonds?

Assuming that the maximum $90,000 of federal grants and bonds are received in those 20 years and the plan is in place for another 10 years (to avoid any repayment issue) an RDSP could grow to be over $300,000, assuming a modest return of 5 per cent per year over the 30 years.

In one year, an RDSP can receive a total of $3,500 in CDSGs (Canada Disability Savings Grants) and over a lifetime of the RDSP’s beneficiary, a maximum total of $70,000. For an $87,123 net income family in 2013, the grant is equivalent to the first $1,000 contributed to a $1,000 a year maximum. The grant is sweetened for below $87,123 net income families. Ottawa contributes $1500 on the first $500 contributed while they add in $2000 on the next $1,000 so that a contribution of just $1,500 results in a yearly maximum grant of $3,500.

The RDSP gets a $1,000 bond yearly, for families with incomes up to $25,365, whether or not the RDSP holder got any contributions that year in Canada Disability Savings Bond. The grant disappears proportionately for incomes between $25,365 and $43,561until it totally disappears at incomes over $43,561. For bond payments, the lifetime limits is $20,000. Thresholds are inflation-adjusted yearly.

It’s the child’s parents’ or guardians’ net income that is the key figure for RDSP beneficiaries under 18 years while for plan holders 18 or older, the key figure is their own family income, whether or not they are currently living with their parents. A 10-year carry forward of unused bond and grant entitlement is allowed by Ottawa for anyone just opening a plan.

The bottom line is that every disabled adult should apply for the disability tax credit, file tax returns set up an RDSP and apply for bonds and grants, whether they have any income or not. The money can really add up. Here’s one example: A low-income family contributes $1,500 a year for 20 years to an RDSP for a total contribution of $30,000. Assuming that the maximum $90,000 of federal grants and bonds are received in those 20 years and the plan is in place for another 10 years (to avoid any repayment issue) an RDSP could grow to be over $300,000, assuming a modest return of 5 per cent per year over the 30 years.

How are funds withdrawn from an RDSP?

Grants and bonds may have to be repaid if they were not in the plan for at least 10 years. The rule for repayment is that: for every $1 withdrawn, $3 of the bonds or grants paid in the previous 10 years must be paid back. Payments of disability assistance may be made from an RDSP any time.

Do RDSP withdrawals affect other benefits?

The part of the RDSP withdrawal that originates from contributions is not taxable while the part that originates from bonds, grants and growth is taxable.

The good news here is that the beneficiary’s entitlement to any federal income-tested benefit is not reduced by payments, like the guaranteed income supplement, the federal sales tax credit and the child tax benefit. In addition, a lot of territories and provinces declare a total or partial exemption of RDSP income and assets from provincial income tested support programs.

Want to find out more info about this great program, contact me and i will gladly provide you with any additional info you require, and / or assist you in opening RDSP account for yourself or your disabled child.

Don’t go to the bank, speak to the The RDSP Expert.

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All information provided was taken from Employment and Social Development Canada website, which is a reliable source and is believed to be accurate, however we cannot guarantee its accuracy. Certain conditions apply please contact your financial advisor for personalized financial advice.