Thursday, October 5, 2017
The Disability Tax Credit and the Registered Disability Savings Plan
For the most part, bad health gets you nothing but heartache and despair. Having bad health makes working tougher, saving money tougher and buying insurance much tougher. Good health is the foundation of quality of life, it’s what sustains us. For those of us who have experienced health issues, including myself, we have an uphill battle in life. For me personally, although I am fairly healthy, I suffer from 2 chronic conditions that hamper my quality of life. Although they are non-life-threatening, they do cause terrible side-effects that make my day to day life worse than the average person. Despite this, I am thankful that my health is good enough to work as much as I do and live a fairly normal life. For others, the situation is far worse. Luckily the Canadian Government has put into place some help for people in these circumstances. The Disability Tax Credit (DTC) and the Registered Disability Savings Plan (RDSP) exist to help those with disabilities, and those who care for them, pay for the extra costs that come with having a disability. In this post, I will give the details about the DTC and RDSP and show how they can benefit you or a loved one.
The Disability Tax Credit (DTC)
The Disability Tax Credit (DTC) is a non-refundable tax credit used to reduce the income tax you pay. It’s available for people with a severe and prolonged physical or mental impairment, subject to approval by the Canada Revenue Agency (CRA). It’s meant to help even out the tax burden by allowing some relief for disability costs since these are unavoidable additional expenses that other taxpayers don’t have to face.
For 2016, the federal non-refundable DTC for an adult is $8,001. If the person with the disability is a child under 18, there is an additional supplement of $4,667, for a total DTC of $12,668. The DTC was designed with the parents of those with a disability in mind. Parents can save money on their taxes that augment the costs of caring for a disabled child. Despite this, there are many adults who qualify for the DTC who aren’t taking advantage of it. I myself have helped dozens of people obtain the DTC and secured back-dated tax money for each of them. Some have even obtained close to $15,000 in backdated taxes paid to them in one lump sum. That is money that they can use for their families, debts and even savings plans.
To qualify for the DTC you have to have trouble performing 2 or more of these daily functions:
Speaking
Hearing
Vision
Walking
Feeding
Eliminating
Dressing
Mental Functions Necessary for Everyday Life
Or be on Life-Sustaining Therapy
There are numerous conditions that qualify for the DTC including these common ones:
- Slowed Walking
Knee/Hip Problems, Osteoarthritis, Poor Circulation, Foot Disorders - Digestion Disorders
Inflammatory Bowel Disorder, Crohn’s/Colitis, Incontinence, Prostate - Limited Upper Body Mobility
Weak/Shaky Hands or Arms, Back/Neck Problems - Breathing Disorders
COPD, Emphysema, Tuberculosis, Chronic Asthma, Sleep Apnea - Hearing Impaired
Hearing Aids, Need of Hearing Aids, Poor Hearing - Cognitive Issues
Memory Loss, Confusion, Alzheimer’s, Dementia, Depression, ADHD - Plus hundreds more
Many companies’ help you fill these forms but then take a percentage of what you receive as payment. The process is simple enough and can be done with the help of a professional for no charge. If you think you qualify, it is worth checking out.
Disability Tax Credit – Government of Canada Website
Registered Disability Savings Plan (RDSP)
If you qualify for the Disability Tax Credit (DTC) you automatically qualify for the RDSP. The RDSP was designed to help families save for future costs associated with having a disability like health care costs and living expenses. To help your savings grow the government adds grants to the initial deposit and throughout the lifetime of the account. There is a lifetime contribution limit on the RDSP of $200,000 and the government may add up to $70,000 of grants and bonds.
Contributions to an RDSP are not tax deductible and can be made until the beneficiary turns 60. Funds that are withdrawn from the RDSP are not considered as taxable in income for the beneficiary when they are paid out of an RDSP. However, the Canada Disability Savings Grant (CDSG), Canada Disability Savings Bond (CDSB) and Investment Income (IE) earned in the plan are as taxable income for the beneficiary when paid out of the RDSP. A CDSG grant is an amount that the Government of Canada contributes to an RDSP. The Government will match grants of 300, 200, or 100 percent, depending on the beneficiary’s family income and the amount contributed. An RDSP can get a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP until the beneficiary turns 50. A CDSB bond is an amount paid by the Government of Canada directly into an RDSP. The Government will pay bonds of up to $1,000 a year to low-income Canadians with disabilities. No contributions have to be made to get the bond. The lifetime bond limit is $20,000. A bond can be paid into an RDSP until the beneficiary turns 50.
Money withdrawn from the RDSP is taxed as income to the beneficiary, except contributions, making it a tax-deferred vehicle. With a large amount of money in the form of government grants available, the RDSP is a highly attractive product for those who qualify. Tax-deferment and free grant money make it a no-brainer. Remember, if you qualify for the Disability Tax Credit, you automatically qualify for the RDSP.
Registered Disability Savings Plan Overview – Government of Canada Website
While living with or caring for someone with a disability can be a grueling endeavor, there is some help out there. The Disability Tax Credit can provide a lump sum in the form of backdated taxes to help ease some of the burdens. The Registered Disability Savings Plan is a great way to save for the future for you or a loved one. Many people I have helped qualify didn’t even know about the programs. Like many things in life, you only know if you make the attempt. Combined they can provide you with a lot of money you didn’t think you had and are another way the Government of Canada helps its citizens.
“There is a plan and a purpose, a value to every life, no matter what its location, age, gender or disability.” – Sharron Angle
Email – joe@budgetboss.ca
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