This is the first instalment in a series examining the disability tax credit and related support programs for eligible Canadians.
Disability sector advocates are applauding federal government proposals to improve access to the disability tax credit (DTC) but say the DTC application process remains complex and lacks transparency. Advocates are concerned the Canada Revenue Agency (CRA) will remain an obstacle when it comes to ensuring those with disabilities receive the support to which they’re eligible.
“Anything to do with clarifying [DTC] eligibility requirements and broadening them is certainly welcome, but the devil will be in the details,” said Peter Weissman, partner at Cadesky and Associates LLP in Toronto and a former co-chair of the federal government’s disability advisory committee (DAC).
While the CRA has made attempts to improve DTC administration in recent years, “they’re starting from way behind the starting line because of years and years of not paying attention to these issues,” Weissman said.
The DTC is a non-refundable tax credit intended to recognize the effect of disability-related costs on the ability to pay tax. For 2021, the value of the DTC is $1,299. A valid DTC certificate also serves as a gateway to access more than a dozen tax-related programs and benefits, including the Registered Disability Savings Plan (RDSP) and the Child Disability Benefit.
To be eligible for the DTC, an individual must have a certificate confirming they have a severe and prolonged impairment — which is present all or substantially all of the time — in physical or mental functions that restricts their ability to perform basic activities.
“For a lot of people, the [DTC] application process is kind of a black box where you send in your application and get a response, but it’s not clear what might really be behind the decision,” said Ron Malis, a financial advisor with Reegan Financial in Toronto who serves clients with disabilities and their families.
In 2017 the government announced it was reinstating the DAC, a body disbanded in 2006, to address concerns that individuals with disabilities weren’t receiving disability tax benefits for which they were eligible. That announcement came soon after the government backtracked on changes made to the DTC application process that saw individuals with DTC certificates, particularly those living with diabetes, lose their eligibility. The DAC released its first annual report in 2019 and its second in April 2021.
In the 2021 budget, following recommendations made in the second DAC report, the federal government said it would update the list of mental functions of everyday life to include “terms that are more clinically relevant [that] would make it easier to be assessed, reduce delays, and improve access to benefits.”
In addition, the government said it would recognize more activities that could be included in determining time spent on life-sustaining therapy and reduce the minimum required frequency of therapy to qualify for the DTC.
The proposed changes to the DTC eligibility would be effective for 2021 and future tax years once enacted. In budget documents, the government estimated the proposals would allow an additional 45,000 people to quality for the DTC and related benefit programs linked to it each year, representing $376 million in additional support over five years.
However, the proposals were not included as part of Bill C-30, the budget implementation bill that received royal assent before Parliament rose for the summer, so the DTC measures have yet to become law.
“It is urgent that these changes be codified in the relevant regulations and laws as quickly as possible so that they benefit the maximum number of [eligible] Canadians,” said Kimberley Hanson, executive director of Diabetes Canada in Ottawa. “With a [possible] federal election looming, there is the risk that the implementation of these budget commitments could be delayed.”
In a May press release, the DAC welcomed the government’s proposals saying they “help move us toward a more progressive and responsive series of supports for people living with disability in Canada.”
Hanson said she was pleased with the budget proposals, particularly the changes to which activities could be included in time spent on life-sustaining therapy. However, Hanson said she would prefer the eligibility rules change so that individuals with Type I diabetes automatically qualify for the DTC without having to periodically reapply.
“It’s an incurable disease,” Hanson said. “We all face extra medical expenses by virtue of having this disease, and that’s what the DTC is designed to help defray.”
Hanson said living with Type I diabetes can cost $15,000 annually in out-of-pocket expenses.
Hanson also said she favours automatic qualification because she’s not confident she “can rely on CRA [adjudicators] to assess the [DTC] applications of people with diabetes consistently one to the other even with these expanded criteria.”
Malis said applicants often find it difficult to navigate the DTC application process or understand the reasons their applications were turned down. “The more clarity that the [CRA] can provide will hopefully help in that regard,” Malis says.
Despite the government’s proposed changes, disability advocates said there remain long-standing issues with how the CRA administers the DTC application process.
Lembi Buchanan, a disability advocate and former member of the DAC, takes particular issue with the CRA’s interpretation of “all or substantially all of the time” as meaning at least 90% of the time. She says that the 90% threshold is not set out in the Income Tax Act and hasn’t been upheld in a number of court decisions over the years. The DAC itself has called on the CRA to stop using the threshold. However, CRA Form T2201 Disability Tax Credit Certificate and other agency guidance on the DTC defines “all or substantially all” as 90% of the time.
“There’s nothing else to go by, so [applicants and their medical practitioners] assume that’s the rule of law,” Buchanan said.
To obtain the DTC, an applicant must fill out Part A of Form T2201, while their medical practitioner completes Part B. “Psychiatrists and psychologists just can’t get around the 90% threshold” as it pertains to patients with episodic conditions, Buchanan said.
The CRA said in an emailed response that its interpretation of the phrase “all or substantially all” is set out in the tax folio covering the DTC Income Tax Folio S1-F1-C2, Disability Tax Credit and “is used in many provisions in the ITA, and not just DTC provisions.” The CRA is also “working with the DAC to explore options” to replace the current guidelines with instructions that are rigorous but easier for health practitioners who are not with the applicant 90% of the time to assess.
In its latest report, the DAC acknowledged that the CRA has “made important progress with respect to the administration of and communications about DTC” since the committee published its first annual report in 2019. “Ideally, the entire DTC process will be more transparent, expeditious and fair” due to the CRA’s improvements, it said.
These changes include improving the quality of information provided to applicants; providing specialized call centre support for complex questions; introducing a “navigator” function to help applicants work through the applications process; updating the disability tax credit certificate form and developing a digital app of the form; and making improvements to the procedures in terms of processing applicants.