Are CPP Disability Benefits and the Disability Tax Credit Different?

August 19, 2022

Are CPP Disability Benefits and the Disability Tax Credit Different?

When it comes to Disability Tax Credit and Canada Pension Plan disability benefits, you’d be surprised how many people are still confused between the two in 2022. The fact is that both DTC and CPP are different disability plans. Most people also get caught in the cobweb of whether they should opt for CPP disability benefits or the Disability Tax Credit.

It is vital to understand that both plans facilitate the disabled to attain and retain a strong social and financial position. However, CPP and DTC have different approaches to aiding disabled individuals. For example, Canada Revenue Agency runs the Disability Tax Credit program, which works as significant tax relief. On the other hand, Human Resources & Social Development is responsible for running CPP. You may not be aware of it, but CPP is one of Canada’s most prominent, extended, and most valued disability pension plans. Remember, participating in CPP does not mean you’ll get approval for the DTC.

Keeping that in mind, let’s break down more fundamental differences between CPP disability benefits and Disability Tax Credit:

The Disability Tax Credit

The Disability Tax Credit works as an income tax relief by making specific adjustments on T1. One of the hallmark elements of the Disability Tax Credit is that it can extend to over ten years rather than one year. The eligibility requirement for the Disability Tax Credit is to have a prolonged and severe condition.

Once you successfully qualify for the DTC, you can avail more than $20,000 in multiple disability benefits. If you’re claiming benefits for a
disabled child, you can get around $50,000. In order to get DTC benefits, the disabled person needs to get the Form T2201 or the Disability Tax Credit certificate. What’s interesting is that you can transfer DTC benefits to a spouse, partner, or family member. In terms of flexibility, you can submit the T2201 form throughout the year. Another highlight of the Disability Tax Credit is that it is a gateway program that involves other disability programs like Registered Disability Savings Program, Working Income Tax Benefits, Canada Child Benefits, etc.

CPP Disability Benefits Program

As a major long-term disability pension program, CPP aids families who need partial earning replacement in the event of a disability, retirement, or death. In layman’s terms, if there is a severe disability involved that makes it impossible to get or retain a job, disabled individuals and their children will be entitled to monthly benefits.

But to qualify, the condition has to be severe and prolonged with the likelihood of potential death. And individuals have to meet both criteria when submitting their application. In CPP disability benefits, medical adjudicators establish the eligibility of individuals based on a submitted application and documents. On average, medical adjudicators take 3-4 months to process the application and make a final decision. In the CPP disability plan, you can only get benefits for 12 months rather than ten years. And this is where DTC stands out since it offers retroactive payments for over ten years to successful applicants.

The disabled get the CPP payments every month and the amount is based on collective contributions to the CPP fund. In some cases, exceptions are made for disabled individuals who are in dire need of funds. But, the general rule of CPP payments requires contributions to the CPP fund. In fact, without these contributions to the CPP fund, you would be deemed ineligible to get any benefits of the CPP plan.

CPP makes two types of disability payments:

CPP children’s benefits

It is a taxable benefit on a monthly basis that varies from personto person and depends on total contributions toward the CPP fund.

CPP standard disability benefits

It is a flat rate taxable payment for dependent children who are at least 18 years old. In addition, teenagers from 18-25 enrolled in an educational institution can also avail the CPP standard disability benefits.

Applying for DTC and CPP

Yes, you can apply for CPP and DTC programs at the same time. However, both programs have their own prerequisite government requirements to get disability benefits. Therefore, in some cases, disabled individuals apply for both and make the most out of combined benefits.

Regarding CPP and DTC, the disability benefits crossover is a practical option. But to make this possibility a reality, you must meet both programs’ specific requirements. For example, you can use the benefits of CPP to optimize the return of DTC. For example, you get $1,000 a month of taxable perks from the CPP disability program and get accepted into the plan. Now, you will probably be refunded by paid taxes on the CPP funds. When you combine the DTC and CPP programs, your CPP disability benefits become tax-free. Technically, DTC reduces provincial and federal tax liability to save income and cover health expenses. However, remember that eligibility for DTC primarily comes down to the submitted information on the T2201 form.

The Essence of DTC and CPP Disability Programs

Today, many people are overwhelmed by the burden of high healthcare costs. And this is where the Disability Tax Credit and CPP disability benefits come to the rescue. Objectively, the Disability Tax Credit helps disabled individuals follow the path of financial recovery. Of course, acceptance into either DTC or CPP program is not 100% guaranteed. But once you become eligible for DTC or CPP disability benefits, you can expect more doors to open with additional support and guidance.

Final Thoughts

If you have a severe long-term disability, don’t hold back and apply for a DTC or CPP disability benefits plan. While it depends on your disability needs, you can apply for both programs. And that’s because both programs offer practical, prompt, and valuable assistance to the disabled. In hindsight, DTC and CPP are designed to aid Canadians in leading a normal life without endlessly worrying about their financial position. In retrospect, disabled folks can see DTC and CPP through the lens of long-term financial security and stability.