Seniors: Let The Disability Tax Credit Boost Your Income Tax, Retirement And Estate Planning
Most seniors believe they are just getting older, slower and more forgetful but certainly not disabled—no way. And why would they ever admit that anyway?
As physical and cognitive disabilities for seniors increase with age, it may be unclear when they have reached the stage where they are markedly restricted and qualify for the Disability Tax Credit (DTC). Their changed health situation can also make them financially vulnerable, but that is a topic for another day.
To qualify for the DTC, it’s not the diagnosis that matters. What matters is the inability to perform certain activities of daily living. This misunderstanding can influence the choice of words used by medical practitioners in their certification resulting in their failure to qualify because of an over-emphasis on medical issues. Rule number one: review the medical certification before your application is submitted.
The DTC has significant advantages beyond the tax credit itself. The tax credit is only useful if you owe income taxes but if not, it can sometimes be transferred to another family member, a spouse or parent, for example.
DTC: Complexity Abounds And Needs Fixing
The convoluted provisions of the DTC are, in part, due to the complexity of the Income Tax Act and in part by the narrowing of some definitions by the Canada Revenue Agency (CRA) administration. On top of that, CRA policy interpretations change from time to time and this means that CRA reviews have new rulebooks on how they deal with particular issues.
Understandably, all of this can confuse mom and dad, their caregivers and advisors trying to put together a great DTC application. The odds of successful application for physical activities are reasonably good but much less so for cognitive functioning, or mental functioning as CRA calls it. Get some professional help if you need it because the DTC application is no walk in the park.
Activities Of Daily Living And The DTC
The DTC is available to individuals who are markedly restricted in one or more of the following activities of daily living (note that there are sub-activities within some of the activities and each of them should also qualify for the DTC):
- Speaking.
- Hearing.
- Walking.
- Eliminating (bowel or bladder function).
- Feeding.
- Dressing.
- Seeing.
- Receiving life sustaining therapies requiring a certain number of hours weekly.
Mental Activities For Daily Living
- Memory.
- Adaptive functioning: self-care, social interaction, health and safety and transactional ability.
- Executive Functioning: Problem solving, goal setting and judgment taken together.
As you can see, CRA shows mental activities as a single activity whereas physical activities are listed separately. This broadens the eligibility for mental functioning beyond what the DTC application implies. If, for example, a person is markedly restricted in one subcategory such as memory, self-care, or executive functioning, each should qualify for the DTC. However, this can be a problem for medical practitioners to explain in their certification.
We Help Clients With Their Applications
In order to help our clients with their applications, we have prepared a comprehensive checklist to review with them which the medical practitioner then reviews and signs as part of the certification. It outlines as many examples as possible of marked restriction for each category and subcategory and should help caregivers better understand the DTC application.
Markedly And Significantly Restricted
To be markedly restricted an individual must be blind or take an inordinate amount of time to do the activity all or substantially all the time (90% or more of the time). For example, CRA suggests that a person would qualify if they take an inordinate amount of time to walk one city block because of pain or shortness of breath and it takes three times as long as it should.
In some cases, an applicant may have significant restrictions in two or more areas that is the equivalent of a marked restriction in a particular area and that too qualifies for the DTC.
The DTC Opens Doors For Better Retirement And Estate Planning
The DTC provides a tax credit to people with a disability and their families and opens and allows many other tax benefits. They are listed in my book, The Family Guide to Disability and Personal Finances. The estate and retirement planning benefits that are extremely beneficial to seniors planning both for themselves and their families:
- Include a Qualified Disability Trust in your Will that is eligible for graduated tax rates for the income of the trust to benefit a family member qualifying for the DTC.
- Include a transfer of Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs) in your Will to a plan for a spouse or infirm family member.
- Open a Registered Disability Savings Plan (RDSP) for a spouse under 60 qualifying for the DTC and then immediately make a large lump sum contribution.
- Claim long term attendant care costs for a loved one living at home, in a retirement or nursing home as a medical expense.
- Make your child’s RDSP the beneficiary of your RRSP /RRIF or Registered Pension Plan (RPP) up to the allowed RDSP contribution limit.
These estate and retirement planning benefits of the DTC can be far more important than the DTC tax credit for seniors. Some of the benefits mentioned above are available for an infirm family member who doesn’t quite reach the DTC requirements. They have been included because of their importance.
Mental Functioning — Each Subcategory Qualifies For The DTC
Form T2201 describes the three types of mental functions as follows:
Adaptive functioning (for example, abilities related to self-care, health and safety, abilities to initiate and respond to social interaction, and common, simple transactions).
Memory (for example, the ability to remember simple instructions, basic personal information such as name and address, or material of importance and interest).
Problem solving, goal setting and judgment, taken together (for example, the ability to solve problems, set and keep goals, and make appropriate decisions and judgments).
The DTC is available for each of the subcategories of mental functioning which considerably broadens its scope. Rule number 2: make sure that the medical practitioner understands this and writes his opinion accordingly.
Adaptive Functioning Shouldn’t Be Overlooked
Adaptive functioning defines how well a person handles common demands in life and how independent they are compared to others of a similar age and background. Adaptive functioning can be divided into three broad areas:
1. Practical Skills
- How you get from place to place.
- How you stay safe and healthy.
- How you follow schedules and routines.
2. Social Skills
- How you behave, talk to and understand others.
- How you feel about yourself.
- How you solve problems.
- Ability to make up your own mind without influence from others.
- How you follow rules, obey the law.
3. Conceptual Skills
- Ability to plan and organize.
- Able to understand abstract concepts like time, money and numbers.
This is does not perfectly align with the DTC application but it’s close and is useful information in preparing your application in the adaptive functioning area. CRA lists adaptive functioning as self-care, social interaction, health and safety and transactional ability and each of these should qualify for the DTC.
Preparing A Successful DTC Application
Page 5 of the DTC application (form T2201) indicates that it is mandatory that your medical practitioner describe the effect of your patient’s impairment on his or her ability to perform each of the basic activities of daily living that you indicated are or were markedly or significantly restricted. I also suggest that the applicant attach a checklist of marked restrictions and ask the medical practitioner to review and sign it.
Your doctor may want to submit copies of medical reports and diagnostic tests if they are helpful in supporting marked restrictions. The caregiver might also include a personal letter showing examples of marked restrictions that they see every day. For difficult DTC applications, especially in the cognitive area, you may want to ask for help putting together your application.
Applications not properly structured to meet CRA’s criteria will be rejected so try to follow these rules carefully. It’s time consuming to start all over again.
Ed Arbuckle