Huge victory for Type 1 Diabetics and access to the Disability Tax Credit

All Type 1 Diabetics – You are now Eligible for the Disability Tax Credit!

When Bill C-19 received Royal Assent on June 23, 2022 – this opened the door to over 300,000 type 1 Diabetics and gaining access to the Disability Tax Credit and the Registered Disability Savings Plan (RDSP).

All Type 1 Diabetics now automatically qualify for the Disability Tax Credit (at least for years 2021 forward). To receive a full 10 year retroactive refund, a diabetic must still must have a physician agree and certify the requirements for Life Sustaining Therapy are being met (prior to 2021 when the legislation was introduced).

Managing diabetes is a 24/7 job. With this new legislation, essentially the Government of Canada has now said that as of 2021, all Type 1 Diabetics are spending greater than 14 hours per week managing their diabetes. So hopefully, it shouldn’t be too hard to have a physician agree that prior to 2021, this was also being done.

The requirements for “Life Sustaining Therapy” were also updated to include activities that diabetics must do on a daily basis such as carbohydrate counting. The updated requirements for Life Sustaining Therapy are as follows:

1. The therapy must be used to support a vital function (insulin is used to sustain life).
2. The therapy must equate to 14 hours per week being spent on activities related to the therapy (as of June 23 2022, this is now automatically being met by all Type 1 diabetics – certification is not required).
3. The therapy must be administered at least 2x / week (prior to the new legislation, it must have been administered at least 3x / week).

Type 1 diabetics must have a physician certify on form T2201 that they are a type 1 diabetic, and indicate the year in which the therapy began. If retroactive years (prior to 2021) are going to be claimed, a physician also must certify the above requirements were being met. If they do not, the Canada Revenue Agency will only approve the application from 2021 forward.

What does gaining access to the Disability Tax Credit mean?

When an individual is eligible to claim the Disability Tax Credit, they can use this to offset their taxable income (or that of a supporting family member/spouse). To simplify things even further – the credit works out to approx. $1,500 – $2,500 per year depending on your province, as well as your taxable income (the amount of federal / provincial taxes you pay on your income tax returns). Assuming you have had taxable income, it is possible to receive a refund of up to $25,000+ (more in the case of minors under the age of 18).

Almost more importantly than the refund that is available from the Disability Tax Credit, once eligible (if under the age if 49) you can receive up to $70,000 in grants and $20,000 in bonds through a Registered Disability Savings Plan (RDSP).

What is a Registered Disability Savings Plan?

Simply put – an RDSP is meant to be a long-term savings plan for those that are eligible for the Disability Tax Credit. The government will give you up to $1,000 per year in bonds, and up to $3,500 per year in grants based on your family net income. These are both also retroactive up to 10 years. Depending on your family net income, in many cases it is possible to open an RDSP and receive $10,000 in bonds without making a contribution.

Grants are rewarded to plan holders when a contribution is made into the account. If you or a family member plan on savings any money for your future – a Registered Disability Savings Plan is the place to do it. On the first $500 put into an RDSP, the government will match contributions 3:1. On the next $1,000 put into the account, the government will match 2:1. This means that if you put $1,500 into your RDSP yearly, you would receive $3,500 in grants (assuming your family net income is below $100,392 (2020 tax year). If your income is above $100,392 the government will still match your contributions 1:1. IE – invest $1,000, receive $1,000 in grants.

Both grants and bonds cannot be withdrawn from an RDSP for 10 years after the date of the last contribution. The government of Canada wants this to be a savings plan for when you are older. Plan holders will be eligible to receive grants and bonds every year until the age in which they turn 49. This is assuming they are still eligible for the Disability Tax Credit.

If you are eligible for the Disability Tax Credit and want to open a Registered Disability Savings Plan, Orthogonal Capital Management can help! Open an account today in under 15 minutes!