Navigating the world of taxes can be challenging, especially for individuals with disabilities and their families. However, understanding the various tax credits, deductions, and savings plans available can significantly ease the financial burden.  

Reviewing the Fundamentals of the Disability Tax Credit (DTC)

The first credit available is the Disability Tax Credit (DTC). We discussed the core elements of the DTC in detail in a previous article here. As a recap, the Disability Tax Credit (DTC) is a non-refundable tax credit designed to help individuals with impairments by reducing the amount of tax they need to pay.

To qualify for the DTC, an individual must have a severe and prolonged impairment that markedly restricts their ability to perform basic activities of daily living. If an individual does not have a severe impairment, they might still qualify for the DTC if they have two or more significant restrictions.

A medical practitioner must certify the impairment or restrictions using Form T2201, Disability Tax Credit Certificate. This form can be submitted to the Canada Revenue Agency (CRA) either electronically or on paper. CRA will review the application and send a notice of determination.

Claiming the Disability Tax Credit

Once CRA has approved the DTC, the credit can be claimed. For 2024, the federal disability amount is $9,872. The amount of actual tax savings varies by province. In Ontario, the total in 2024 is approximately $1,987.

If the person with the disability is under 18 years of age at the end of the year, a supplemental credit of up to $5,758 may be available. This credit could be reduced if childcare or attendant care expenses for the person with the impairment have been claimed. The supplemental credit could translate into additional tax savings of about $1,159 in Ontario in 2024.

Transferring the Disability Tax Credit

If the person with the disability does not need the full amount of the DTC to reduce their taxes to zero, the unused portion can be transferred to a supporting family member who provides some or all of the basic necessities of life including food, shelter, and clothing. Supporting family members include:

  • their spouse or common-law partner
  • their child or grandchild
  • their parent, grandparent, brother, sister, uncle, aunt, niece, or nephew
  • a child or grandchild of their common-law partner
  • a parent, grandparent, brother, sister, uncle, aunt, niece, or nephew of their spouse or common-law partner

Other Tax Deductions and Credits

Disability Supports Deduction

Individuals who have an impairment may be able to deduct expenses they paid to be able to work, go to school, or do research for which they received a grant. Eligible expenses include attendant care, certain job coaching services, and specific assistive technologies and support services. A full list of eligible expenses is available on CRA’s website.

Attendant Care Expenses

If the person with physical or cognitive challenges requires attendant care or resides in a nursing home, these expenses are eligible for the medical expense tax credit.

Home Accessibility Tax Credit

If renovations are made to the home where the person with the impairment normally resides, up to $20,000 of these expenses may be eligible for the Home Accessibility Tax Credit.

Multigenerational Home Renovation Tax Credit

Starting in 2023, this credit is available for expenses incurred to create a secondary unit within the existing dwelling or on the property. One of the people living in the new unit or on the existing property must be an “eligible individual”, which means someone who is:

  • either 65 years of age or older, or
  • be 18-64 years of age and be eligible for the DTC.

Since only one of the eligibility criteria above needs to be met, this credit is available for individuals over 65, even if they are not eligible for the disability tax credit.

The total amount of costs that can be claimed is $50,000, generating a maximum refundable credit of $7,500. Only one qualifying renovation can be claimed for each eligible individual in their lifetime.

Note: Mortgage insurance reforms were announced in the Fall 2024 Economic Statement that should make it easier for homeowners to access the equity in their home to finance the construction of a secondary suite.

The Canada Caregiver Credit

This credit is available for people supporting a spouse or common-law partner or a dependent with a physical or mental impairment. The credit calculation is affected by the spousal and eligible dependent credits and is eroded as the income of the person with the impairment increases but could provide modest tax savings in some situations.

Potential Benefits from Other Programs

Canada Pension Plan Disability Benefits

If the person with the impairment is unable to work and was previously contributing to the Canada Pension Plan (CPP), they may be eligible for disability benefits through that plan. If the person with the impairment is eligible for CPP, their children may also be eligible for benefits if the children are under 18, or between 18-25 and in full-time attendance at a recognized school or university.

Child Disability Benefit

The Child Disability Benefit is available to parents who receive the Canada Child Benefit for children eligible for the Disability Tax Credit. The benefit is calculated using the same information used to process the Canada Child Benefit, so it is important to make sure that information is up to date.

Provincial Programs

Eligibility for provincial programs is often based on income and assets but could be worth investigating further depending on the circumstances of the person with the impairment.

Special Savings Plans Available

Registered Disability Savings Plan (RDSP)

The RDSP is a savings plan intended to help parents and other qualifying family members save for the long-term financial security of a person under the age of 60 who is eligible for the Disability Tax Credit. Contributions to an RDSP are not tax-deductible, but investment income earned in the plan grows tax-free until withdrawn.

Canada Disability Savings Grant – This government program matches contributions to a Registered Disability Savings Plan at rates of 300%, 200%, or 100%, depending on the beneficiary’s adjusted family net income and the amount contributed. The maximum match is $3,500 or $1,000, also depending on these factors. Grants are available until the beneficiary turns 49.

Canada Disability Savings Bond – This program for low-income families will provide up to $1,000 per year for the beneficiary’s RDSP regardless of how much is contributed.

Trusts

Trusts can be useful in a situation where a loved one wants to provide a larger sum for a person with an impairment. With all trusts, a trustee is appointed to manage the funds. If the funds are meant to provide for the person with the impairment, then they would become the beneficiary of the trust. Trust law in Canada varies by province, and trusts must be structured properly to meet objectives while complying with the rules. Therefore, obtaining proper legal and tax advice is essential.

Henson Trusts

A Henson Trust can be useful in a situation when preserving eligibility for asset or income-tested government benefits is a priority. With this structure, the trustee has absolute discretion in distributing income and capital to the beneficiary as they see fit. Because the beneficiary cannot legally demand payments from the trust, they are not considered to own the trust assets, which helps protect their eligibility for government benefits.

A Henson Trust can be created while the person funding the trust is still alive, or as part of their will.

Qualified Disability Trust

This type of trust can only be established as part of a will. The advantage of this type of trust is that it can access low marginal rates as long as it remains eligible, whereas other trusts created by an estate only have access to lower tax rates for up to three years. To receive this preferred tax treatment, an election must be filed within certain time limits, so it’s important for the trustee to seek professional advice on a timely basis.

Other Trust Structures

Other trust structures that are sometimes used in situations where the beneficiaries don’t have an impairment might also fulfill the objectives of planning for someone with a disability.

The preferred beneficiary election is another tool that can be used in some cases to allow the income to be taxed in the hands of the beneficiary with an impairment, without the requirement of paying the income out to that beneficiary. Both the beneficiary and the trustee need to meet certain criteria for this option to be available, so it’s important to discuss the details of your situation with professional advisors before the trust structure has been finalized.

Trust considerations

Trusts can be extremely useful when providing for an individual with an impairment, but they do have some pitfalls if they are not set up properly. Obtaining legal and tax advice is essential when establishing any kind of trust structure.

McCay Duff LLP in Ottawa provides comprehensive tax solutions and support

At McCay Duff LLP, our trusted team of Chartered Professional Accountants provides high-quality tax and business advisory services to Ottawa and surrounding businesses. We assist corporations in achieving maximum profitability, minimizing tax obligations, and staying compliant with tax laws through expert tax planning, preparation, and advice. Don’t hesitate to contact your McCay Duff LLP consultant if you are considering a trust or have questions regarding tax planning for people with disabilities so that we can advise you on the potential implications for your situation. Contact us online or by telephone at 613-236-2367 or toll-free at 1-800-267-6551.