Disclaimer: Connected in Motion cannot provide tax advice. Please refer to the government of Canada and the Canada Revenue Agency for information regarding the Disability Tax Credit.
In June, the government of Canada announced that all Canadians living with type 1 diabetes will now automatically qualify for the federal Disability Tax Credit (DTC)! We understand that taxes are not the easiest or most fun thing in the world, so we’ve broken down what this means for Canadians with T1D and how to utilize the credit.
What is the Disability Tax Credit?
The DTC reduces the amount of tax that Canadians with disabilities pay to help offset some of the costs associated with living with a disability. We all know how expensive T1D is!!
It is important to note that because the DTC is a non-refundable tax credit, it only reduces tax liability and cannot be used to increase or create a refund. In other words, the DTC amount is subtracted from the amount of taxes you owe to a minimum of 0. If the DTC amount exceeds the amount of taxes you owe, you do not get the difference refunded to you. However, if the DTC recipient does not need the full disability amount, they can transfer the remaining amount to an identified supporting family member.
In 2021, the DTC amount was $8,662 for adults aged 18 and older and $13,715 for children aged 17 and younger.
Why is this change significant?
The DTC is a greatly helpful tool for Canadians living with disabilities such as diabetes and bearing all of the extra costs. Provincial and federal insurance coverage for the slew of supplies needed to manage diabetes is often limited, and private insurance coverage can have significant deductibles. As a result, Canadians with diabetes often have to pay thousands of dollars out of pocket which results in many not being able to follow their prescribed treatment regimens.
Previously, qualifying for the DTC as a person with diabetes was challenging and elusive. A doctor had to submit a form stating the applicant spent at least 14 hours per week on “eligible activities.” The problem? A lot of diabetes management activities – e.g. recovering from high and low blood sugar, attending medical appointments, exercising, counting carbohydrates, and meal preparation – were not considered eligible.
Then, in 2017, it was found that the Canada Revenue Agency (CRA) had internal guidance that claimed: “Unless there are exceptional circumstances, adults with diabetes can generally manage their daily insulin therapy without taking 14 hours per week.” Under the directive, many people with type 1 diabetes were denied the DTC.
This limiting interpretation of how the DTC applies to type 1 diabetes was thankfully removed after an outcry from the community, but the flaws of the weekly hour requirement remained. Around this time, however, the Disability Advisory Committee was reinstated to advise the CRA on disability tax measures. Their 2019 report recommended that people needing life-sustaining therapy (like insulin!) should “automatically meet the criteria” for the DTC.
In May of 2022, an amendment was passed to make this recommendation a reality for Canadians with T1D. This was a huge win owed to all of the people that spoke out about the importance of making the DTC accessible including organizations like JDRF Canada and Diabetes Canada.
How do I use the DTC?
First, you will have to apply using the CRA’s Disability Tax Credit Certificate (Form T2201). Please note that the digital version has not been updated to reflect the expanded criteria quite yet! The CRA recommends using the paper version until the digital application is updated at the end of this summer.
Form T2201 has 2 parts – Part A is filled out by you (the applicant), and Part B is filled out by your medical practitioner. Once completed, you send the form to a tax center that reviews it and sends you a decision letter. You can submit Form T2201 at any time in the year.
Then, to claim the DTC for the current tax year, you just need to enter the disability amount in the appropriate spot on your tax return. Be aware that the expanded eligibility criteria for type 1 diabetes only apply to the 2021 tax year and onwards, not previous years.
And you’re done! With this new change, we are hopeful the process will be a lot smoother than it has been in the past.
