THE BLOG

The Feds Are Finally Improving the Disability Tax Credit

11/28/2014 12:37 EST | Updated 01/28/2015 05:59 EST

Government is now taking steps to regulate the double-digit fees charged by "promoters" who handle application paperwork.

The Disability Tax Credit is meant to provide tax relief to Canadians with a "severe and prolonged impairment in physical or mental functions" that affects their daily lives. In 2013, according to the Canada Revenue Agency (CRA), about 620,000 Canadians claimed the credit, which provides $1,155 in federal savings and more, depending on your provincial credit.

At the same time, according to CRA data, about 1.1 million are eligible to collect, half of them seniors. So why isn't everyone who's eligible applying? Many simply don't know they're eligible. For others, it comes down to not understanding the process to apply for the credit. Making a retroactive claim could mean a refund of thousands of dollars so, if you do qualify, it is important to go through the process.

Unlike other tax credits, you have to apply to claim the Disability Tax Credit (DTC) before you file your return. Your physician or certified medical professional needs to complete a Form T2201 Disability Tax Credit Certificate. For many, the barrier is the complexity of the application process. It plays in favour of DTC promoters -- individuals who charge as much as 30 per cent of the expected tax refund to manage the process for taxpayers. You do not need to use one of these services to get your DTC.

DTC promoters are currently unregulated. There's no standard schedule to pay a doctor or tax preparer for the service. Anyone could put a sign on their front lawn advertising that you may be missing out on your Disability Tax Credit and "I can help." The person can then charge essentially any amount to complete your paperwork. Not only do they solicit people with disabilities to apply for the credit, but there have been cases where they send people to the promoter's doctor to ensure the T2201 Form is completed correctly.

This spring, the federal government moved to address the issue. A private member's bill proposed by Cheryl Gallant, Member of Parliament for Renfrew-Nipissing-Pembroke, received Royal Assent on May 29. The Disability Tax Credit Promoters Restrictions Act aims to regulate the amount of money that can be charged to applicants for the credit. It doesn't take effect until the regulations are established. To determine what those limits should be, and how the application process can be streamlined, the federal government began a public consultation in early November. In-person consultations will take place in Vancouver, Toronto, Montreal and Halifax, but the government is also accepting online input from citizens.

This is welcome news. DTC promoters are becoming more aggressive and although the CRA may initially approve a claim, it can go back and review it. We are seeing cases where people used DTC promoters and received a retroactive five-figure refund only to be reassessed when the CRA determined they didn't actually qualify. Remember, when you sign your tax return, you become responsible for the information and you are on the hook for the amount owing. You do not receive the fees back from the DTC promoter.

Like all non-refundable tax credits, the DTC only benefits those with sufficient taxable income to utilize them. In this situation, it can be a valuable credit. But for a low-income senior living on the guaranteed income supplement, it may not be worth the paperwork of applying because you can't use the credit even if you qualify.

The other points to remember about DTC are:

• Doctors are not the only ones qualified to certify certain disabilities. Optometrists, audiologists, physiotherapists and psychologists may qualify to complete the forms.

• Persons under the age of 18 can claim up to an additional $4,530 that can be transferred to a parent, who likely has a larger tax burden. This amount may be reduced if the parent is claiming child-care or attendant-care expenses.

• The disability amount can be transferred to a spouse with a higher income.

• Many doctors now charge a flat annual fee in the $100 to $150 range to cover all documentation expenses for a patient. Especially in the case of seniors, this may be a worthwhile investment, and should cover your DTC application. It can also be claimed as a medical expense.

If you think you might qualify for the DTC, you can find the application online. We also give out free copies in our offices. If the CRA approves your credit retroactively, you can file T1 Adjustment Forms for each year you need to claim. Yes, it is a bit more paperwork than your usual tax credit but it could mean thousands of dollars in your pocket.