The benefits of the Disability Tax Credit (DTC) go beyond just reducing last year’s taxes. These savings could quadruple in a Registered Disability Savings Plan (RDSP), which is only available to those who are approved for the DTC. Yet, we see many applications being denied.
Why is the DTC important?
There are several advantages to applying for the DTC and having this in place as early as possible. Medical expenses that are not covered by OHIP or a private insurer can be written off annually. The 2018 disability amounts that can be claimed on federal and provincial taxes are $8,235 and $8,365 respectively. For the 2018 year, this could equate to $1,657 back in the taxpayer’s hands (or into an RDSP).
There are additional benefits for those who are under 18 years of age, such as the Child Disability Benefit which is paid out on a monthly basis. Another advantage is the eligibility to open a Registered Disability Savings Plan. There is a potential $90,000 in government grants and bonds which must be captured annually through holder contributions before the end of the year of the beneficiary’s 49th birthday. Annual contributions of $1,500 will trigger the maximum eligible grants and bonds. With an RDSP, there is also the ability to keep some assets exempt under ODSP rules and regulations and defer tax on the growth.
What could this mean?
For example, John is a 34-year-old man who was injured at work in 2015. He is currently receiving LTD benefits totaling $24,000 in annual taxable income. His total uncovered medical expenses are $8,400 each year and he has been approved for the DTC since 2015. Because he was approved for the DTC in 2015, he has redirected those tax savings into an RDSP each year. With zero dollars out of pocket, after the 2018 tax year and assuming 6% growth within the plan, he will have approximately $28,375 accumulated.
What could go wrong?
There has been an alarming rate of applications rejected from the CRA. This is in part because CRA no longer calls upon registered nurses to review the applications. This may be left to government employees to interpret the writings of the physician who completed the application. Any treating physician can complete this section, however, one that is fully aware of the severe and prolonged impairments would be ideal. In some cases, the information a general practitioner is willing to document may not be detailed enough. If the application is rejected 3 times, the next step is to appeal in court. Not only can this be frustrating and stressful, it also delays the tax credits and the growth on the contributions within the RDSP; not to mention the cost of going to court. It is beneficial to work with a professional during this process to consult with the physician and aid in proper completion of the application.
At Hudson Wealth and Trust Planning Group, we offer those who have been injured with a complementary application assistance service. We understand the benefits of having this in place early and the frustration that may come along with navigating this process. Contact us for more information.