If you’re experiencing long-term unemployment or are between jobs, where can you turn? If you have family and other loved ones, you may be able to lean on them temporarily for help, but in this distressed economy even charity only goes so far. And if you’re disabled trying to get by on an already fixed budget, times can be even tougher. Thankfully, we’re here to help and will help you apply for and maximize benefits through the Canada Pension Plan (CPP) – benefits you earned while employed. A disability tax credit through the CPP may be the lifeline you’ve been waiting for.
We’ve helped thousands of people secure a disability tax credit, and each time we meet someone they have good questions that they couldn’t find answers to, such as are my benefits taxable? And how do I qualify for this sort of credit? Here’s what you need to know.
Yes, your disability tax credit or other benefits you receive from the government of Canada is considered taxable income. That’s not necessarily a bad thing: Remember, tax revenue helps keep the program solvent. When you file your income tax forms at the end of the year, you may end up paying a lump sum on the disability benefits, or you could have the tax taken out in equal amounts with your monthly CPP payment. Essentially, this is a non-refundable tax credit you claim on your income tax each year, assuming you meet certain requirements. The credit reduces the amount of taxes you pay because it reduces the amount of taxable benefits you earned during the previous tax year.
If there’s a silver lining to the disability tax credit, it’s this: It’s not just for the well-to-do who may be suffering a temporary setback due to an injury or illness that can benefit. You can, too, through any number of qualifying expenses during the year. These would include charitable donations, medical expenses, and other expenses such as child care.
Qualifying for the disability tax credit through the Canada Pension Plan is simple enough as long as you meet the following requirements:
1. You started working by the age of 18 and made CPP contributions for four of the last six years or three of six during the last 25 prior to being classified as disabled.
2. You have been determined to be disabled, after being examined by a qualifying medical professional. In order to qualify for the disability tax credit, your disability must be severe and prolonged, as decided upon by the person – also known as a medical adjudicator – reviewing your disability, medical records, or other supporting documentation.
Finally, if you want to take advantage of this disability tax credit, you have to file a special form with Canada Revenue Agency called Form T2201, “Disability Tax Credit Certificate” which needs to be validated by a doctor. The form also contains valuable information, particularly definitions related to qualifications, among them:
• Life-sustaining therapy, which talks about the type of therapy received, the duration of the therapy, and any related medication you take.
• Markedly restricted, which states that “You are markedly restricted if, all or substantially all the time, you are unable (or it takes you an inordinate amount of time) to perform one or more of the basic activities of daily living (see Question 4 on the next page), even with therapy (other than life-sustaining therapy to support a vital function) and the use of appropriate devices and medication.
• Qualified practitioner, which is defined as medical doctors, audiologists, optometrists, physiotherapists, psychologists, occupational therapists, and speech-language pathologists.
For more information, please contact Disability Credit Consultants of Canada at 855-752-0288, or the Canada Revenue Agency.