The Disability Tax Credit (DTC) may be one of the most commonly overlooked tax deductions. Many people do not claim it, assuming they do not qualify. But if you have a disability that causes you some restrictions in your regular daily activities, you may be eligible. For example, Type 1 diabetics may qualify depending on the amount of time spent monitoring the condition.
The DTC can lead to considerable tax savings. For 2013, it is worth about $1,155 in tax savings federally, and there will be a provincial amount as well. Children under the age of 18 receive an additional supplement worth up to $673 in federal tax savings. If you have a long-term health issue and haven’t been claiming the credit, you can do so retroactively for up to 10 years.
However, the DTC requires Canada Revenue Agency (CRA) approval. Your doctor needs to complete a T2201 Disability Tax Credit Certificate for the CRA to review and approve, and you can only proceed once you have this approval.
Now, if you have not been claiming the DTC and file 10 years retroactively, the refund can be a substantial amount – usually in the five-figure range. It can be quite a pleasant surprise for taxpayers who didn’t realize they qualified.
Filing your DTC claim retroactively is relatively simple. You need to complete a T1 Adjustment Request for every year you wish to claim the credit. However, there are firms that advertise specialized help to make retroactive claims, and they charge a percentage of the refund. If you expect a $10,000 refund, they can take as much as 30 per cent for preparing the paperwork.
In the recent decision of Ridout v. The Queen, the Tax Court has ruled that the fees charged by these firms to prepare a request for adjustment are not deductible. The reason is that only fees associated with filing a Notice of Objection or an appeal are specifically allowed as a tax deduction under the Act. Ironically, therefore, taxpayers whose claims are allowed by the CRA cannot claim the related fees whereas taxpayers whose claims are disallowed and subsequently appeal are allowed to claim the costs of preparing the appeal.
So if you are paying a percentage of your DTC tax refund to a service, make sure you understand all your obligations if the CRA does review your claim. We strongly advise against utilizing the services of these types of firms. You should not have to pay a percentage of your refund in order to get a Request for Adjustment prepared.