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.