Lessons Learned: A Review of the Disability Tax Credit; Part I

There's much going on and so much wrong in the world today, that it's hard to even know where or how to start. In all honesty, right at the moment, I'm finding it hard to move off the couch after my daily date update with Justin.

But life (more or less) goes on and for the past few months I've wanted to update a topic we haven't discussed in quite a while - the Disability Tax Credit ("DTC"). When we first discussed the DTC in 2007, I explained how and why it's so much more than just a tax credit and I would recommend refreshing your memory on that. 

Not only does the DTC give a nice size tax credit to an individual with a "profound impairment" resulting in them being "markedly restricted" in any of the basic activities of daily living {"ADL"), it is the gateway to access other federal tax programs and benefits, such as the Registered Disability Savings Plan ("RDSP") and the Child Disability Benefit (a supplement to the Child Tax Benefit).

The full eligibility requirements for the DTC can be found here.

Bottom line; the DTC can be extremely important for you and your children (as applicable).

However, the DTC is notoriously hard to receive and unfortunately, that situation has only worsened over the past few years.

Only 40 per cent of the more than 1.8 million people who live with severe disability in Canada use the federal disability tax credit (DTC). And the mind-numbing rules devised by the Canada Revenue Agency to assess eligibility for the credit are likely one of the main reasons for such poor uptake.

That’s the conclusion of a recent review of the credit by the University of Calgary’s School of Public Policy, which also cites low awareness of the credit and limited understanding of its potential benefits as possible causes for low participation rates.

In fact, the situation is so bad that many who should qualify don't even bother to apply.

Although the wording of the eligibility requirements set out in the legislation hasn't changed significantly, the way those provisions are being interpreted by the CRA have become so tight that they verge (and often cross the line into) ridiculous.

In 2019, a government panel tasked with examining the federal tax measures offered to Canadians with disabilities made several recommendations to improve the DTC situation for Canadians.

To state, as the Panel did in the "2019 First Annual Report of the Disability Advisory Committee: Enabling access to disability tax measures – Report in brief" that "receiving the credit can often be an uphill battle that requires navigation of a complex set of requirements in the application phase" is a huge understatement.

One of the recommendations made was that the CRA change the requirement that a person must have a "severe or prolonged impairment" that restricts an activity of daily living that is present “all or substantially all the time.” An applicant will be considered "markedly restricted" in at least one of the ADL if "all or substantially all the time", he or she cannot (or takes an inordinate amount of time to) do one or more of the basic ADL.

This is where it gets interesting - although the legislation does not specify a percentage to define "all or substantially all of the time", the CRA in its infinite wisdom has decided that a  person must be markedly restricted at least 90% of the time, something that has NO basis in law.

The 90 per cent interpretation is problematic for those with mental disorders and for those with disorders that are characterized by episodic symptoms,” said Dr. Karen Cohen, co-chair of the committee.

There were numerous other recommendations, including that the CRA make the application form more readable and offer a second review when a claimant with long-standing eligibility for the credit is suddenly rejected. A summary of all the recommendations can be found here.

Now that we have reviewed the importance and challenges involved with the DTC, in my next post we will look at the appeal process and the lessons I recently learned in successfully appealing the decision that my adult daughter longer qualified for the DTC.

* You can learn more about other tax measures for individuals with disabilities here.

Estate Documents: When is it Too Late?

I want to share a very sad situation I was recently involved in so that hopefully it won't happen to any other family.

I was approached by a gentleman seeking estate documents [Wills, Powers of Attorney ("POA") and Personal Directives ("PD")] for himself and his wife, who was hospitalized with a terminal condition. I took instructions, completed the documents and attended at the hospital so they could be signed.  However, when I spoke to the wife, I immediately realized we had a problem - she did not appear to have the legal capacity required to validly sign the documents.

Although the instructions the husband had given sounded perfectly reasonable and I had no reason to think that this wasn't what she wanted, I could not proceed with having the wife sign the documents.

What's required for a person to have the "legal capacity" will vary depending on the act to be performed. However, in general terms, in order to execute legally valid documents, you must have a certain level of competency. You must have the ability to understand the information relevant to making the decision and the ability to appreciate the reasonably foreseeable consequences of the decision or lack of decision.

Unfortunately, mental competence can become an issue if a person’s ability to think clearly is affected by illness, drugs, or pain. This is why it's critical that Wills and other estate documents be completed while you are in good health so that there are no questions as to your mental competence.

I felt bad for both parties but it emphasized how important it is to prepare such documents before it is too late.

Note to yourself: there's a good chance it will be "too late" to proceed with such documentation when you already have a terminal diagnosis.

This is especially so when you consider leaving assets in a Will to a beneficiary whom is challenged.

For more information on the standards required to execute valid estate documents, please follow the link.