Transferring the Disability Tax Credit (DTC) in Canada, especially when using TurboTax, can seem a bit complex, but it's a fantastic way to ensure that the financial relief from a disability benefits those who truly support the individual. Whether you're transferring it from a dependent (like a child or parent) or from a spouse/common-law partner, TurboTax guides you through the process.
Ready to dive in and maximize your tax benefits? Let's get started!
Understanding the Disability Tax Credit (DTC) in Canada
Before we get into the "how-to" of transferring the DTC in TurboTax, it's crucial to understand what the DTC is and why it's so important. The DTC is a non-refundable tax credit that helps reduce the income tax payable for individuals with a severe and prolonged mental or physical impairment. It acknowledges the unavoidable expenses that come with living with a disability.
The key takeaway here is that it's a credit, not a direct refund. This means it reduces the amount of tax you owe. If the person with the disability doesn't have enough taxable income to fully utilize the credit themselves, the unused portion can often be transferred to a supporting family member.
Eligibility for the DTC
To be eligible for the DTC, the person with the impairment must have a valid Disability Tax Credit Certificate (Form T2201) on file with the Canada Revenue Agency (CRA). This form must be certified by a qualified medical practitioner. The impairment must be:
Severe and Prolonged: It has lasted or is expected to last for at least 12 continuous months.
Markedly Restricted: The person is significantly restricted all or substantially all of the time in one or more basic activities of daily living (e.g., walking, feeding, dressing, mental functions, life-sustaining therapy).
Step 1: Ensure DTC Approval and Gather Necessary Information
Before you even open TurboTax, the absolute first and most critical step is to ensure that the individual with the disability has already been approved for the Disability Tax Credit by the CRA. This means their Form T2201, Disability Tax Credit Certificate, has been processed and accepted.
Think of the T2201 as your golden ticket – you can't transfer the credit without it being approved!
Sub-heading: Checking DTC Approval Status
If you're unsure whether the DTC has been approved, or for which years, you can:
Check your CRA My Account: The CRA's online portal will show you the status of the DTC application and the approved period.
Contact the CRA directly: You can call the CRA to inquire about the DTC status.
Review past Notices of Assessment: If the DTC was approved in a previous year, it would typically be reflected on the Notice of Assessment for that year.
Sub-heading: Information You'll Need
Once you confirm DTC approval, gather the following information for the person with the disability:
Full Name and Social Insurance Number (SIN): Essential for identifying the individual.
Relationship to You: Are they your spouse, common-law partner, child, parent, grandparent, or another eligible relative? This is crucial for TurboTax to apply the correct transfer rules.
Confirmation of Support: For dependents other than a spouse/common-law partner, you must have relied on them for some or all of the basic necessities of life (food, shelter, clothing). While you don't always need to submit proof with your return, be prepared to provide it if the CRA asks.
Their Net Income: Even if they don't have enough income to use the DTC, TurboTax will need to know their income to calculate the transfer amount.
Step 2: Open TurboTax and Select the Correct Tax Scenario
Now that you're armed with the necessary information, it's time to open TurboTax.
Don't worry, TurboTax is designed to simplify this process, but knowing where to look helps immensely!
Sub-heading: Starting a New Return or Continuing an Existing One
New Return: If you're starting fresh, simply launch TurboTax and choose to create a new tax return.
Existing Return: If you've already started your return, navigate to the relevant section for credits and deductions.
Sub-heading: Identifying Your Relationship to the Person with the Disability
TurboTax will typically ask you about your household and dependents early in the process. This is where you'll indicate your relationship to the person whose DTC you wish to transfer.
For a Spouse or Common-Law Partner: You'll likely enter their information in the "Spouse/Common-Law Partner" section.
For a Dependent (Child, Parent, etc.): You'll need to add them as a dependent in the "Dependents" section.
Step 3: Navigate to the Disability Tax Credit Section in TurboTax
The exact navigation may vary slightly depending on your TurboTax version (online, desktop) and the current tax year, but the general pathway is similar.
This is where TurboTax starts doing its magic, guiding you through the specific fields.
Sub-heading: Using the Search Function
The easiest way to find the relevant section in TurboTax is to use the search bar.
Go to the "Search" bar (usually found at the top or side of the screen).
Type "disability amount" or "Disability Tax Credit."
Select the appropriate result that appears.
Sub-heading: Manual Navigation (if search isn't preferred)
Alternatively, you can often find it by navigating through the "Credits" or "Deductions" sections:
Go to the "Deductions & Credits" tab or section.
Look for categories related to "Medical Expenses" or "Family & Dependents."
Find "Disability Amount" or "Disability Tax Credit."
Step 4: Inputting Information for the Person with the Disability
Once you're in the Disability Tax Credit section, TurboTax will prompt you for details.
Accuracy is key here to ensure a smooth transfer!
Sub-heading: For a Spouse or Common-Law Partner
If you're claiming the DTC transferred from your spouse or common-law partner:
TurboTax will automatically link to your spouse's tax information if you are preparing both returns together (which is highly recommended for couples).
It will prompt you to confirm if your spouse is eligible for the DTC and if they have sufficient income to use it.
If they do not need the full amount, TurboTax will automatically calculate the transferable portion and apply it to your return on Line 32600 – Amounts transferred from your spouse or common-law partner.
Sub-heading: For a Dependent (Child, Parent, Grandparent, etc.)
If you're claiming the DTC transferred from a dependent:
TurboTax will ask you to identify the dependent from your list.
It will then ask questions about their eligibility for the DTC. You'll need to confirm that their Form T2201 is approved.
TurboTax will inquire about their net income. This is crucial because the dependent must not need the full disability amount to reduce their own income tax to zero before any can be transferred.
You'll typically confirm that the dependent relied on you for basic necessities.
TurboTax will then calculate the transferable amount and apply it to your return on Line 31800 – Disability amount transferred from a dependant.
Important Considerations:
No Double Dipping: The person with the disability cannot claim the full amount on their return if you are transferring it. TurboTax is usually smart enough to prevent this if you're preparing both returns within the same file.
Splitting the Credit: If another supporting person (e.g., another parent) also supported the same dependent, you can split the claim. However, the total claimed cannot exceed the maximum allowable amount. TurboTax will guide you on how to enter this if applicable.
Retroactive Claims: If the DTC was approved for previous years but not claimed, you can request adjustments for up to 10 years in the past. This process is usually done outside of the current year's TurboTax filing, either through CRA My Account or by mailing Form T1-ADJ. However, TurboTax may prompt you about this if you're entering the initial DTC approval date.
Step 5: Review and File Your Return
After inputting all the necessary information, TurboTax will show you a summary of your tax return, including all credits and deductions.
Take a moment to carefully review everything – this is your final check!
Sub-heading: Verifying the Transfer Amount
Look for Line 31800 (for dependents) or Line 32600 (for spouse/common-law partner) on your federal tax return summary.
Ensure the amount transferred makes sense based on the information you provided.
Sub-heading: Completing Your Return
Run the "Review" function in TurboTax: This will catch any potential errors or missing information.
Address any warnings or suggestions: TurboTax often provides helpful tips or highlights areas that might need further attention.
Proceed to file: Once you're confident everything is accurate, you can proceed to NetFile (electronic filing) or print your return to mail.
Congratulations! You've successfully navigated the process of transferring the Disability Tax Credit using TurboTax!
10 Related FAQ Questions
Here are 10 common "How to" questions related to transferring the Disability Tax Credit, along with quick answers:
How to determine if a dependent is eligible for DTC transfer?
A dependent is eligible if they have an approved Form T2201, do not need the full DTC amount to reduce their own tax to zero, and relied on you for basic necessities (food, shelter, clothing).
How to find the approved DTC period for a family member?
You can find the approved period on the CRA's notice of approval, through their My Account portal, or by contacting the CRA directly.
How to claim the DTC transfer if the person with the disability doesn't live with me?
You can still claim it if you meet the "supporting person" criteria, meaning you regularly and consistently provide basic necessities due to their impairment. The CRA may ask for proof of support.
How to handle the DTC transfer if multiple family members support the same person?
You can split the claim, but the total amount claimed by all supporting persons cannot exceed the maximum allowable DTC amount for that dependent. TurboTax will guide you on how to allocate this.
How to make a retroactive DTC transfer claim for previous years?
This is typically done by requesting an adjustment for past tax years. You can use the CRA My Account service to "Change My Return" or mail a T1-ADJ form for each relevant year, indicating the adjustment for Line 31800 (dependent) or 32600 (spouse).
How to confirm the DTC amount for the current tax year?
The federal base amount for the DTC is adjusted annually by the CRA. For the most current figure, refer to the CRA's official website or TurboTax's calculations for the relevant tax year.
How to get a new Form T2201 if the previous period of approval has expired?
You will need to re-apply for the DTC by completing and submitting a new Form T2201, certified by a qualified medical practitioner.
How to determine if I am an eligible "supporting family member"?
You are generally an eligible supporting family member if you are a spouse, common-law partner, parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew, and the person with the disability is dependent on you for basic necessities.
How to ensure TurboTax correctly calculates the transferred amount?
Ensure you accurately input all requested information about the person with the disability, including their net income and the approved DTC status. TurboTax's algorithms are designed to calculate the maximum transferable amount based on these inputs.
How to contact TurboTax support if I encounter issues with the DTC transfer?
You can usually find support options within the TurboTax software or on their website, including phone support, online chat, or community forums where you can ask specific questions.