Of all the credits on the personal tax return, one of the most valuable ones is the disability tax credit (DTC), which can be worth between $1,500 to $2,700 of combined federal and provincial tax relief, depending on your province of residence. The DTC was first introduced in 1944 as a $480 deduction for blind persons. It was expanded in 1985 to individuals with severe disabilities and then replaced by a non-refundable tax credit as part of the 1987 Tax Reform. In 2000, a supplement for children was introduced for families caring for eligible children with severe and prolonged impairments.
The DTC provides tax relief for non-itemizable disability-related costs for an eligible individual that has been certified by a qualified medical practitioner as having a “severe and prolonged” disability. The credit amount can be transferred to a supporting spouse, parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the individual with the disability.
An estimated 1.8 million Canadians over the age of 15 live with a severe disability and, according to the 2019 Report on Federal Expenditures released last week, 1.2 million individuals claimed an amount for the DTC for 2015. This includes about 815,000 eligible persons who claimed all or some portion of the credit for themselves, 160,000 individuals who claimed all or some portion of the credit on behalf of an eligible spouse or common-law partner, and 275,000 individuals who claimed all or some portion of the credit transferred from an eligible person (such as a parent for a minor child).
Qualifying for the DTC can be challenging, depending on the type of disability. To qualify, the individual with the disability (or their legal representative) must complete Part A of Form T2201, Disability Tax Credit Certificate. Part B must then be filled out by a medical practitioner. Even with the form properly completed and certified, there’s no guarantee your application for the DTC will be accepted by the Canada Revenue Agency.
Indeed, last summer, the Senate Committee on Social Affairs, Science and Technology issued a report entitled “Breaking Down Barriers: A critical analysis of the Disability Tax Credit and the Registered Disability Savings Plan” after observing a sudden spike in the number of DTC applications that had been rejected by the CRA. The report urged the government to remove barriers that prevent individuals from taking advantage of the DTC.
A tax case decided earlier this month provides us with yet another example of how difficult qualifying for the DTC can be. The case involved a Nova Scotia taxpayer in her early thirties who suffers from “severe social anxiety disorder, severe panic disorder with agoraphobia, and chronic and generalized moderate to severe generalized anxiety disorder … (and) persistent depressive disorder,” as diagnosed by two psychiatrists.
For the past five-and-a-half years, the taxpayer has lived in an apartment on her own. She describes this home as the most stable she has had since leaving the family home in 2007; she did not last more than a year at any other place she lived, all of which were shared accommodation. Until finding her current apartment, she moved at least twice a year because she had problems living with other people.
At trial, her mother testified that the taxpayer has difficulty coping socially, participating in social and recreational activities, or working. The taxpayer has been on medication for her depression and anxiety since high school and estimates she’s tried 10 to 15 different medications and it has been difficult to find one that helps. She has been under the care of her family doctor who, together with her family, has been trying for the past decade to find a psychiatrist willing to take her on as a patient; however, there is a shortage of psychiatrists in Nova Scotia.
To be eligible for the DTC, an individual must have one or more severe and prolonged impairments in physical or mental functions and the effect of the individual’s impairments “must markedly restrict her ability to perform one or more basic activities of daily living, all or substantially all of the time.”
Under theIncome Tax Act, an individual’s ability to perform a basic activity of daily living will be “markedly restricted” only where all or substantially all of the time, even with therapy and the use of appropriate devices and medication, the individual is unable (or requires an inordinate amount of time) to perform a basic activity of daily living.
In the current case, the only basic activities of daily life (as that term is defined in the Act) that might be considered markedly restricted are “mental functions necessary for everyday life.” This phrase is defined in the Act to include memory, problem-solving, goal setting and judgment (taken together), and adaptive functioning. Adaptive functioning has been described as “how well a person handles common demands in life and how independent they are compared to others of a similar age and background.”
The CRA felt she didn’t qualify for the DTC as the taxpayer was able to do many things for herself — bathing, dressing, cooking, grocery shopping, taking the bus — and that the primary difficulty she has is with working or interacting with people other than her family and friends. The CRA felt that her “mental impairments did not affect her ability to perform the necessary basic activity for everyday life all or substantially all of the time.”
The judge disagreed, writing, “It is clear that (the taxpayer’s) social anxiety, depression and phobias do have a significant effect on her ability to function in the way society expects adults to function. She is not able to go about her daily life as most would. She is easily overwhelmed, avoids social contact, and prefers to stay at home by herself rather than leave her apartment. She is heavily dependent on her mother and her friends to help her make what most would consider mundane, easy decisions and to complete what most would consider routine tasks.”
As a result, the judge concluded that the taxpayer was entitled to the DTC going back to 2015.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Financial Planning & Advice Group in Toronto.