Disability Tax Credit

Living with a disability can significantly increase the cost of daily life. From medical expenses and specialized equipment to support services and reduced work capacity, individuals with disabilities often face financial challenges that others do not. To help address this burden, the Canadian government offers the Disability Tax Credit (DTC) — a non-refundable tax credit designed to reduce the income tax payable by individuals with a severe and prolonged physical or mental impairment, or their supporting family members.

This article provides a comprehensive overview of the DTC, including its purpose, eligibility requirements, application process, benefits, and important considerations for individuals and families.

What Is the Disability Tax Credit?

The Disability Tax Credit is a federal tax measure introduced to support Canadians living with disabilities. It is a non-refundable tax credit, meaning it can reduce the amount of income tax you owe but cannot provide a refund beyond what you have paid in taxes. However, if you haven’t claimed the credit in past years, you may be able to receive retroactive payments, which can add up to thousands of dollars.

The primary goal of the DTC is to offset the extra living costs that can arise from having a disability. It also serves as a gateway to other programs, such as the Registered Disability Savings Plan (RDSP), the Canada Workers Benefit (CWB), and other provincial and federal supports.

Who Is Eligible for the DTC?

To qualify for the DTC, an individual must have a severe and prolonged impairment in physical or mental functions. This condition must:

Be prolonged (lasting or expected to last for at least 12 months), and

Markedly restrict the individual’s ability to perform basic activities of daily living, such as speaking, hearing, walking, feeding, dressing, mental functions, or bowel/bladder functions.

Alternatively, individuals may qualify if they:

Spend a significant amount of time (at least 14 hours a week) on life-sustaining therapy, such as dialysis or insulin therapy for diabetes.

Eligibility is not based on a specific diagnosis but rather on how the condition affects a person's day-to-day functionality. For example, two people with the same medical condition might not both qualify—one may be significantly restricted while the other is not.

The Role of a Medical Practitioner

To apply for the DTC, a medical practitioner must complete and certify Form T2201 – Disability Tax Credit Certificate. This form can be filled out by a medical doctor, nurse practitioner, or in some cases, other specialists such as optometrists, audiologists, occupational therapists, or psychologists, depending on the nature of the impairment.

The Canada Revenue Agency (CRA) uses this form to assess whether the applicant meets the eligibility criteria. The decision is based on the medical information provided, not solely on a diagnosis.

How to Apply for the Disability Tax Credit

Here’s a step-by-step guide to applying for the DTC:

Obtain Form T2201

You can download it from the CRA’s website or request a paper copy.

Have the Form Completed by a Medical Practitioner

The relevant sections must be filled out and signed by a qualified health professional.

Submit the Form to the CRA

The form can be mailed or submitted electronically via your CRA My Account.

Wait for the CRA’s Decision

The CRA may take a few weeks to review the application. In some cases, they may request additional information from your doctor.

If the application is approved, the CRA will notify you of the tax years for which you can claim the credit—often going back up to 10 years if eligible.

How Much Is the DTC Worth?

As of the 2024 tax year, the federal portion of the DTC is worth about $9,428. This amount reduces your tax payable by approximately 15%, which translates into about $1,414 annually in tax savings. Provinces and territories also offer a corresponding DTC, which varies depending on the region.

If you haven't claimed the DTC in past years but were eligible, you can request adjustments to your previous tax returns and potentially receive retroactive refunds. Many applicants receive lump-sum payments of $5,000 to $20,000 or more, depending on how many years they were eligible.

Transferring the Credit

If the person with the disability does not earn enough income to benefit from the tax credit, they can transfer the unused portion to a supporting relative. This could be a parent, grandparent, child, spouse, sibling, or other eligible caregiver.

The transferred amount can provide significant tax savings for caregivers who contribute to the well-being and daily needs of the individual with the disability.