The number of people living with mood and anxiety disorders in Canada has increased drastically over the past decade, with more than 5 million people affected in 2022, according to a study by Statistics Canada.
Living with an anxiety disorder or severe depression can make even the simplest tasks harder, which may in turn affect your ability to earn money or lead to extra expenses.
If you qualify, Canada’s disability tax credit might be able to provide some financial relief by reducing the amount of tax you owe.
Using the DTC for a mental health condition
The disability tax credit, or DTC, is a non-refundable tax credit that can be claimed by individuals with disabilities or their caregivers, and may help to offset some of the costs associated with living and working with a disability.
The maximum disability tax credit for the 2023 tax year is $9,428 for people over 18. Those aged 17 or younger could receive $9,428 plus a $5,500 supplement for children.
Canadians with mental health conditions such as anxiety or depression may be eligible to claim the DTC if their condition has led to a “marked restriction” in their ability to perform the basic tasks of daily living.
The keyword there is “may” — a diagnosis of a particular mental health condition isn’t enough to qualify you for the DTC. Instead, you’ll have to demonstrate that your condition affects your life in certain specific ways.
How to know if your mental health condition qualifies
The Canada Revenue Agency (CRA) is responsible for assessing applications for the DTC, and eligibility is based on the effects of an impairment, rather than on a diagnosis or the presence of a specific medical condition. It considers impairments in various categories, such as walking, hearing, feeding and mental functions.
To qualify for the federal government’s disability tax credit under the mental functions category, individuals are required to meet three criteria:
1. You can’t perform certain functions, or they take you much longer to do
If you’re unable to complete a given function — or it takes you three times longer than someone else who doesn’t have the same condition — you might qualify. The tasks must take you three times longer even if you use therapy, medication or assistive devices.
Some of the mental functions considered by the CRA include:
- Adaptive functioning, such as caring for yourself, completing simple transactions or adapting to change.
- Goal setting, including making plans and initiating simple tasks.
- Concentration, such as being able to focus on tasks.
- Emotional regulation to prevent harm to yourself or others.
2. The impairment is almost always present
The CRA considers “almost all of the time” to be at least 90% or more. Note that the criteria here applies to the impairment, so your anxiety disorder or depression must have this impact on your daily life more than 90% of the time.
3. You’ve experienced impairment for 12 consecutive months
You must have experienced marked restriction on your daily life continuously for the past year or expect that the effects will continue for at least a year.
Nerdy Tip: If you’re not sure whether you qualify for the DTC, the CRA encourages you to apply anyway. Information provided to the CRA by your doctor, nurse practitioner or psychologist will help determine your eligibility.
What to do if you don’t meet the criteria
If you don’t meet all of the eligibility criteria for a marked restriction due to mental health, you might still qualify for the DTC if you also have limitations in another category, such as walking, speaking, hearing or vision.
In this case, you may be eligible based on the “cumulative effect of significant limitations,” which means that the combined effect of two or more limitations is considered as severe as having a marked restriction in one category.
Again, you must demonstrate that these limitations are present together at least 90% of the time and have existed (or are likely to exist) for at least 12 consecutive months.
How to apply for the DTC for a mental illness
Applying for the disability tax credit for mental health conditions such as an anxiety disorder or depression is similar to applying for the DTC for other disabilities. First, you’ll fill out Part A of the application (Form T2201, Disability Tax Credit Certificate) online, by calling the CRA or by mail.
In Part A, you’ll include your basic information (or your supporting family member’s information, if you’re transferring the credit to a caregiver). You’ll also consent for the CRA to contact your medical practitioner. You can check a box to ask the CRA to automatically assess and adjust your past tax returns, as well. If your application is approved, you can claim the DTC retroactively for up to 10 previous tax years.
Part B of the application is filled out by your medical practitioner, either via a reference number that they use to complete a digital form online or using a paper form. If you’re applying under the mental functions category, the practitioner must be a medical doctor, nurse practitioner or psychologist. In their assessment, they’ll consider factors like:
- Your symptoms.
- Your medical history.
- The impairment of your daily activities related to your condition.
- Their observations of your limitations.
Nerdy Tip: If you and your provider both fill out the forms online, they’ll be automatically submitted when your provider finishes filling out Part B. If you have a PDF or scanned form, you can submit it online via the CRA’s My Account. You must submit paper forms by mail.
How to claim the disability tax credit for mental illness
Once the CRA has approved your DTC application, you can claim the tax credit on line 31600 of your tax return.
If you don’t need the full amount to reduce your income tax owing, you can transfer the remaining amount to a supporting family member, such as a spouse or common-law partner, child, grandchild, parent, grandparent or sibling.
When contacting you about your approval, the CRA will also let you know the years for which you are eligible to claim the DTC. You may be able to claim it retroactively for up to 10 previous tax years.
You don’t need to re-apply for the DTC every year. But in some cases, DTC applications expire after a certain number of years and the CRA will ask you to submit a new application. In this case, they will notify you a year in advance.
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