011. The Disability Tax Credit (Part 2): Why It’s a Gateway Benefit

Episode Summary:

In Part 2 of our Disability Tax Credit series, we move beyond eligibility and focus on why the Disability Tax Credit (DTC) matters so much - not just for taxes, but as a gateway to critical federal supports.

If you haven’t listened to Part 1 yet, we recommend starting there to understand who qualifies and how the application works. This episode builds on that foundation and explores how DTC eligibility unlocks financial supports, long-term planning tools, and protections that many families rely on.

Why this matters:

The Disability Tax Credit is often misunderstood as a modest tax break. In reality, it is a key that opens the door to multiple federal programs that can significantly impact financial security, estate planning, and long-term care for people with disabilities.

Without DTC eligibility:

• Families may lose access to federal benefits
• Long-term savings tools may be unavailable
• Trusts may be taxed at the highest possible rate
• Caregivers may face unnecessary financial strain

This episode explains how missing the DTC can quietly limit supports, even when someone clearly lives with a long-term disability.

Key Takeaways:

• The Disability Tax Credit is a gateway benefit, not just a tax measure
• Eligibility for the Canada Disability Benefit (CDB) requires DTC approval
• An approved DTC is required to open a Registered Disability Savings Plan (RDSP)
• RDSPs can include up to $70,000 in grants and $20,000 in bonds over time
• Without a DTC, disability trusts are taxed at the top marginal rate
• With a DTC, certain trusts may qualify as Qualified Disability Trusts (QDTs) and be taxed at lower rates
• Approval letters must be read carefully, some DTCs expire and require renewal
• A denial does not mean the end: reapplications, reviews, and appeals are possible
• Strong applications rely on storytelling, documentation, and functional evidence, not just checkboxes

Memorable lines:

“The Disability Tax Credit isn’t just about taxes, it opens doors to everything else.”

“It’s not filling out a form. It’s telling a story.”

“Without the DTC, families can lose access to supports they didn’t even know existed.”

Resources & Links:

Factsheet: Applying for the disability tax credit (DTC)
https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/help-others/outreach/outreach-materials-print-share/factsheet-applying-disability-tax-credit-dtc.html

Registered Disability Savings Plan (RDSP):
https://www.canada.ca/en/employment-social-development/programs/disability/savings.html

Canada Disability Benefit:
https://www.canada.ca/en/services/benefits/disability/canada-disability-benefit.html

Transcript

Welcome back to We Advocate.
 This is part two of our series of Disability Tax Credit.
 You haven't listened to Part 1. Check that out about how to qualify.

Today we're talking about sort of how is it a gateway benefit. Right.
 We're going to get into some of the details and examples where other federal support programs sort of get tied to eligibility for the disability tax credit on that.

And so let's jump into that today.
 I think it's, we'll start with the most recent one first, and that's the Canada Disability Benefit.
 There was a prior episode that we got into all the details, so we're not going to repeat all of that here today.
 So we also encourage you to go back and listen to that episode.

But it's interesting when they talked about a basic level of support for Canadians with long-term disabilities, not surprisingly, they looked at eligibility for the disability tax credit to determine, well, who gets it and who doesn't get that.

Yeah. So what it does is, it creates problems, right?
 Because what the criteria is for ACE or ADAP eventually is that it doesn't necessarily look at the same criteria.
 CRAs is more a functional test, whereas ACH is looking at whether someone can earn a living.
 So again, the criteria is looked at, but it really is looking at it two different ways.

Well, and The candidate disability benefit right now is $200 a month.
 It's interesting, since we recorded that prior episode, there was a bunch of, we've had a federal budget, and there was some that had hoped there would be an increase in the amount or a more fulsome support for Canadians that have long-term disabilities.

So at this point, the only deliver of positive news, I guess, that I picked up on was that they were committed to looking at the disability tax credit and making it better.
 There's still ongoing advocacy saying, well, $200 is a good start, but it doesn't go very far, right?
 And we highlighted certainly that in Alberta, that's being clawed-backed in any event.

But just really to highlight here, in order to get the candidate disability benefit that you, in fact, need the disability tax credit.
 So if it's one of the requirements, it's that gateway, it's positioned as a gateway to getting the Canada disability benefits.

Before you get the CDB, you've got to go back and apply for the disability tax credit.
 So we find a lot of people, because they're being forced into it due to age.
 They're now going, well, I've never needed it before, but I do need it now because otherwise there's a threat that the age benefits are going to be clawed back.

And so yeah, we've talked on other episodes about the importance of communication and taking action on behalf of your loved one to make sure they qualify.

And hopefully the takeaway from all these, these particular episodes, this part two in particular is that there's lots of benefit for the disability tax credit even beyond saving some money on your, you know, you get a bigger refund check because you have, or you're paying less tax.
 That's one element of it.

But it's so important as a, as an open door, it's opening doors to other programs like the Canada Disability Benefit. Right.

And that registered disability savings planner or the RDSP is another financial tool that's, that's available to disabled Canadians.
 And, but you can't open an RDSP unless you have the disability tax credit approval.

So again, it's tied. It's opening the door to something else.
 But it's, and it's a great, it's a great tool.

So one of the things to remember for each of these programs, they're going to have specific criteria.
 For example, they often include, well, you have to have at least some tax returns files so they can look at prior income.

So all these different programs of the federal government are all unique.
 You've got to look at the rules for each of them.

But what they have in common is they both require eligibility for the disability tax credit.
 And that really emphasizes, I guess, the point that it becomes important to get the disability tax credit and then to keep it.

And we'll talk a little bit about, well, how can you lose it and what happens in that circumstance on that.

But there's a significant amount of money with the RDSP.
 Hopefully most people are aware of it, although we, I think, still come across people who have not heard of the Registered Disability Savings Plan or RDSP.

The it can contribute up to $70,000 in grants and $20,000 in bonds.
 Now, that happens over 20 years.

So it really emphasizes the need to set these up earlier rather than later.
 But as long as you're eligible, and there are specific rules with regard to that, you're eligible for the grants and bonds prior to turning the year after you turn 49, and then you have to start pulling it out the year after you turn 59.

So then you can't set it up any longer, but when we're talking specifically about the grants and bonds, that is prior to age the year after 49.

So it really does favor a younger person who has a long time to put money in and to begin to build it, but we often see if people have been doing this consistently when the RDSP came into effect, and that was in 2008, that right now the amounts in the RDSPs are pretty significant, right?

You can see, I had one the other day. There was like $250,000 in the RDSP when I was reviewing the family's financial situation as part of their estate plan.
 So a significant amount of money.

That's a quarter of a million dollars because they've been putting in a little bit.

People by analogy may remember the RDSPs are structured similar to an RESP.
 So if you, for an able-bodied child might have set up an RESP and then the government will contribute, if you put in some money, the government will add some money, right?

On a one-to-one basis, the contributions for the grants and bonds are enhanced.
 They have a different scale of, you know, it's one-to-one, then two-to-one, and then three-to-one.

But the amount of money you can put into the RDSP on an annual basis maxes out if you have a contribution of $1,500.
 And the government's going to put in $3,500, and you can do that every year.

So, and then the bonds are tied to if you just don't have any income, regardless of whether you're putting money in the RDSP, the $1,000 per year will go in just because you're low income.

And every year, the income tests and how you're eligible is adjusted for inflation.

So we'll, you know, at the time of this recording, or by the time you're listening to this, the numbers may be different, but you need to research that.

But you definitely want to talk to a financial person to set up a good plan to maximize the grants and bonds.

Because you can imagine, over time, if you're putting in this extra money every year, it starts accumulating with proper investment into a large amount, right?

So you've got the money you put in.
 You've got the government putting money in.
 And then you're going to have the growth through investment.

So that's where you can, over time, you can really start seeing this get into a big dollar amount.

As I mentioned, And there can be, you know, can move into six digits fairly quickly.

And that could be a great financial support for the person with a long-term disability.

It's meant for later in life.
 It's not, you can't use it like a checking account.
 You say, well, I need a car. I'm not, you can't pull money out to go buy the car.

But it's there kind of like your pension or your RSP for the disabled person.
 It's there to support them.

And again, having eligibility for the disability tax credit is the, is a key requirement in addition to their other requirements, because if you don't have it, you don't get to set it up.

So if you get an approval, you'll get an approval letter, very important to read that approval letter because it will also say whether it's long term or whether it has to be renewed after a certain period.

So sometimes people haven't read it.
 They just see yes that it's approved and then they don't sort of read further.

That is really important because you may have to actually renew it again.

And it isn't dependent on what the disability is.

I've had people with Down syndrome have to reapply at the age of 22, which makes no sense whatsoever.

But it'll be things like that that you, it's not just a given.

You think, well, this disability is long term, so therefore I don't have to renew it.

You have to check what it says in that letter, and if it says that you need to renew it, then towards the year before sort of that you're doing it, you have to make sure that you're, again, doing a new application.

And I think there's also certainly other programs that the disability tax credit is going to be a distinct advantage.

There's the child disability benefit, caregiver credits, there's some refundable medical expense supplements that are going to be tied.

And of course, the government in the future may create other programs.

But the other one I want to emphasize for people, and I guess I see it regularly in my practice because I'm helping people with their estate plan, is that there's a different tax result, whether you have the disability tax credit or not, in terms of how that trust for your loved one, for your child or loved one is treated for tax purposes.

So in a situation where somebody has passed away and they've left some money in a trust for a disabled beneficiary, there is the possibility with eligibility with a disability tax credit to have that trust taxed at lower rates of tax.

Okay, so let's start with what the normal rule is.

If you set up that trust, the rule is that all trusts are taxed at the top marginal rate of tax.

So in Alberta, that'd be 47, 48%.

An exception of that rule as it is if the trust is what they call a qualified disability trust.

Or again, another acronym when you deal with the government, there's always acronyms, a QDT.

So from a planning perspective, we want to get the lower rates of tax.

So if you're saying, hey, I've got a child with a long-term disability and I want to set up a trust for that child, I want it to pay the least amount of tax possible.

You get that by virtue of having that child qualify for the disability tax credit.

I think we've talked about there's going to be access to other programs like you can set up an RDSP.

That could be quite valuable from a financial perspective and providing supports for your child.

We've talked about the Canada disability benefits, but from an estate planning perspective, from my perspective, it's essential.

I want to make sure that that trust is going to be treated as a qualified disability trust, because then I get the benefit of marginal rates attacks as opposed to the top marginal rate.

And that could make quite a difference, you know, maybe in the range of $8,000 to thousand dollars a year depending on the size of the trust.

But there's some, you know, if that happens on a long-term basis, those savings can be for the benefit of that child and is, you know, should not be, you know, discounted in terms of providing that financial support for that child.

So that just, to me, highlights the need that you've got to get the disability tax credit and you've got to keep it, right?

To your point, you've got to read that letter of eligibility from Canada Revenue Agency and read it carefully to make sure there's no opportunities for it to run out because you had to reapply.

Well, and I think over time we've seen that the government is using it to sort of tie new things to, to show disability.

So again, it's just a really important thing to have in place so that if there are new things that are coming forward, that it will automatically be tied to the individual who has the disability tax credit.

So let's talk a little bit about in the next segment about appeals and reviews.

And in particular, okay, Annie, somebody send you an email and says, I try to do this on my own. I got to know.

They said, my kid doesn't qualify.

And they're all upset.

They're going to go, how can they, like they don't know my kid. That makes no sense.

What do you take us through the process that you'll analyze to determine what next actions might be?

Well, I definitely don't want to see sort of what has been submitted to CRA.

So look at, is it just the disability tax credit?

Have they added additional information to sort of back up the diagnosis?

If not, then I'd want to say, okay, well, we need to look at what was submitted and then Has it truly shown that someone's markedly restricted or significantly restricted?

And if not, what can we add to it in order to...

So we want to start from the place of just maybe reapplying just to maybe get a yes.

And sometimes we have somebody who's maybe been turned down years ago and said, well, I applied in it. You know, I got turned down already, so I don't want to apply again.

But the rules have changed.

The application has changed.

So I would suggest strongly, too, that people reapply with that in mind and hopefully then we'll get a yes.

But you want to make sure that you have a lot of backup information to help bolster the fact that this is something that is longer term and that it's something that is affecting the individual's life.

So depending on when the application was filed, I guess the first point was you might do a new application with new information.

But I think you can also, number two, ask for an internal review if you think that there is new medical information that wasn't part of the process.

I got to imagine that if somebody's doing it on their own and they don't realize all this medical stuff, it's just a form to be filled out.

There's not a story to be told.

I know I keep saying really that, I think for me, summarizes this process.

It's about storytelling, right?

They don't do a good enough job about telling the story, and they need the medical information.

So one would be reapply if it's been a while, but I think you can also, but like you to comment on it.

Can you ask them to review that application?

Yeah, so again, a lot of times I'm trying to get additional information.

Remember, I love paper.

So I'd like to get it away from the person who's just looking at checkmarks on the application to actually having to make an analysis from all the documentation that sort of backs it up.

That always will move your application to someone who understands disability more.

And that's where sort of the storytelling comes in is how can you take all of that and then show to the person who it's moved up to that this person does in fact qualify.

So you want to have a lot of backup and you want it to go hopefully in front of a person who really does understand disability.

And I think if you're looking at some of the formal process and hopefully we don't have to get in there if we do a good job in the application process is you can file a notice of objection if there's a denial.

Now you have 90 days to do that so that, you know, maybe too late and maybe you just have to reapply.

But then it goes to the appeals division, so then you might have a different set of eyes that are looking at it, and that's one avenue.

And then ultimately, you could also go to the Tax Court of Canada if that's not working.

I think from our experience, most of the time we're not getting that far in all the years we've been doing it.

We haven't ended up in the tax court, but technically that that appeal process through the legal system is, is there.

I think a bit of the takeaways on this would be, or to summarize, would be doing, if we do a good job at the front end, then we don't have to worry about the appeal process or getting into this more complicated process.

But I think what's happening is, is There's more and more writing on the disability tax credit.

So sometimes it makes these legal appeals become more of an option, right?

Because there's more at stake with regard to that.

Yeah, but just any sort of summary points there, Annie, on the, I think we've got some good points about make sure the new information is there.

Other thoughts and process, other than my comment of saying, you should get some help on this.

This is important enough that it's not a do-it-yourself suggestion.

I recognize that comment to kick off the discussion here about takeaway points is a bit self-serving because we're in the business of offering help with people, but I think it is complicated enough and important enough that it deserves advice, it deserves support and taking it seriously and doing a good job, as we're emphasizing here because so much rides on it.

Well, and I oftentimes push more towards the re-application of more information.

I don't always like to go the root of the appeal until we really have to because, again, then there's a set sort of judgment against, whereas if you could add additional information and have them review, there isn't a set.

Then it's a set no when you're getting the appeal process.

So again, then we're sometimes gathering more information.

Then you don't have the window of only 90 days.

You can just do it sort of whenever you have a chance to do that because sometimes some of the new information that you have to gather takes longer than the 90 days.

So let's move to the next section.

And we talked a little bit about now that we've talked about the program, we can maybe look a little into the future in terms of what needs to change.

I guess this is a little more open-ended saying if we were in charge of the disability tax credit program, what would we change or what would we hope the government is going to change, acknowledging that in the last budget that has been issued, and at the time of this recording, we're in mid-November of 2025, that we can think of a few things that if we had a wish list, we would like to make some changes.

You want to kick off Annie with at least an initial thought of, if you had a magic wand and could change anything, what would you change in the Disability Tax Credit Program?

Well, I think a real understanding of the people who are sort of analyzing the application, a real understanding of disability, especially ones that have lots of ups and downs in them.

So more episodic disability.

So somebody who's doing really well, so you could have, you know, sometimes somebody who has MS is really good for a while and then all of a sudden goes downhill.

And bipolar.

Like any of the mental health is very up and down lots of times.

And so to have a true understanding on, yes, there are little periods where someone is doing better and maybe is more significantly rather than markedly restricted.

But to really understand that when we're looking at this on an average across the board, then they should, they should really qualify because, because on them, you know, if you looked at the whole picture or looked at the whole story of this person, you would see that, yes, in fact, this, this affects every part of their life every day.

And even though there's some days that are better than others.

I think others have advocated that we need a broader definition with regard to Um, I was sharing with you before we hit the record button that, um, I don't know what the current statistic is, but there's significant number of Canadians that struggle on a, on, um, on a regular basis, but they don't quite meet the test.

Now, acknowledging, maybe it's time to reapply, because the criteria has changed, right?

Um, that, that, that, you know, an example that would be, well, you had type 1 diabetes.

Maybe you couldn't prove it was a 14 hours a week.

Well, now you should reapply because it's automatically qualified.

There's an example of a change in the rules.

That would be for the person's benefit.

So in that circumstance, the rules change, you reapply.

But if I were to wave a magic wand, I would like to see that it's affecting more the Canadians that struggle.

is I think I've talked to clients who have shared with me disheartingly that their kid doesn't qualify for the DTC.

That means they don't get to set up an RDSP.

They don't get access to the Canada Disability Benefit.

Maybe they qualify for age, but they don't get these other benefits.

They're going to pay higher rates of tax for their child in that testamentary trust as part of their estate plan.

And I go, well,

Why can't we have access to that?

Those people are struggling.

So there seems to be an element of kind of an arbitrariness with regard to the disability tax credit.

And while they've tried to make improvements on it, so we've got to give tip our hat to the government to say, well, it has improved over time.

That's a good thing.

I think there's a lot of Canadians that it doesn't capture.

And they don't get the benefit of that, even though If you look at it, they're still struggling.

So looking at some of those criteria and maybe reaching more people who really need the help.

So they, you know, their family can help set up a registered disability savings plan.

That would be a good thing.

You know, getting that extra $200 a month would be a good thing.

Having some of the tax breaks we're talking about would be a good thing.

So that would be my wish.

I think also just the medical guidance and like sometimes medical practitioners are are thrown into the role of okay here's this application can you just fill it out.

If they had a better understanding of sort of what they're looking at and how it's the functionality um of daily life that that's looked at then if they had some tools even on knowing how to best fill in the forms I think that would make a difference too.

um and it's good that it's opened the door to other people being able to do it too.

But I think sometimes we don't give medical practitioners, especially doctors, the tools to actually know what exactly are they looking for so that I can do the best application possible for my patient.

One step in the right direction in that regard was expanding the number, the types of people who could fill out the medical portion, that part B of the application, right?

So that was a step in that same direction, right?

But I hear your point of saying, but they, you know, not only improve the form, but better training so people know what they're doing.

I think on that, you've had, because I know you've shared it with me, lots of experiences where you've had to sit down and do that education with the medical practitioner to say, well, here's what the form means.

And here's, like, because they, they don't know.

Like they're not learning it in med school.

And, and maybe over time, they're picking up tips.

But where did they go to figure this stuff out? Right?

You know, on that, I think the other thing maybe, I guess my final point on if I could wave a magic wand would be consistency of decision making.

Because certainly I've seen that you're going to go, okay, one family gets it and the next family with a fairly similar situation doesn't get it.

So it's like, okay, what?

in results, right, that you're going to go, well, how come this family got it, but this family didn't, right?

That, you know, when you're scratching your head going, well, why did that happen?

Again, we're not in the, in the middle of the process, but I would say if the government could look at, can we make it better?

That's a good thing.

Well, and I think if the, if the application even had something that indicated, you know, further documentation could accompany it, and these are the idea of the different things that possibly could be included.

Because oftentimes people have no idea that they can add additional information.

They're just sending in the Disability Tax Credit.

And they're very surprised when I say, no, no, no, no, we need to add a lot of additional things.

If the actual application indicated that you were able to do all of that and maybe suggested to that you do, that would be helpful.

So it's not, as we've heard before in this space, it's not just filling out a form, right?

It's telling the story.

And that's part of the advocacy is you have to tell that story and then figure out how best to do that, acknowledging the tests.

And that's, I guess, you know, a bit of a summary of what we're talking about in this two-part episode on the Disability tax credit is that you need to understand what they're looking for and communicate and advocate in a way that is highlighting the important points that they're analyzing, which is going to be different than other programs, right?

And that's the frustrating part is all these different programs have different tests.

If you're looking at the test for age, that's different than the test for the disability tax credit.

So you need to know the test and then figure out how best to tell the story that meets the criteria that they're looking for, right?

And there's a skill set in that.

And then if you're not sure how to do that, then I would say, you know, reach out for help on that.

Because it's not, it's not necessarily, it's not just a, well, we're filling in a form and sending it in.

I think you were remarking to me the other day going, you saw somebody had started to complete the forum and you had to stop them and say, no, no, you can't just send that in.

It's not just checking a few boxes and filling out the form and signing it.

There's a lot more to it.

I guess that's a bit of the theme of our talk here as we close out.

Well, and I think understanding that though the different things that we're applying for, like disability tax credit, maybe it's ACE or ADAP, like we do want to use, even though they're looking for different criteria, we also want to use a well-done disability tax credit application to actually bolster our AHA application, though it's looking for something different.

Again, that's what I was talking about, about the backup information.

It could be used for other things as well.

All right.

So that wraps up part two.

A good discussion.

Thank you for that.

Annie, I think we did a good deep dive into the disability tax credit.

Yeah.

So if you're wondering how it fits, then hopefully this helps to clarify.

And with that, we acknowledge that we can't cover everything on this topic.

And we'd be delighted if you reached out to us and we had some conversations.

That's why, you know, this could be a starting point for that.

So do reach out to us.

And as well, if there's any other episodes you want us to cover, then just let us know.

Or if you have questions or examples with regard to the disability tax credit, you want to share your story about what's worked, what doesn't work, let's as a community share that together.

So with that, thank you for listening.

Keep advocating and we'll see you next time on the We Advocate podcast.

Till next time.