HUMA Committee Report

TAX FAIRNESS FOR PERSONS WITH DISABILITIES

INTRODUCTION

The income tax system provides an important means for the federal government to deliver benefits directly to individual Canadians. In recent years, the federal government has successfully used it to put in place benefits that have assisted some of the most disadvantaged Canadians (particularly children). It has also served as a means of delivering benefits to Canadians with disabilities. As far as disability is concerned, the Disability Tax Credit (DTC) is by far the most visible federal disability program. All Canadians who file a personal income tax form - particularly those with disabilities and their families - confront the DTC every year when they prepare their income tax returns. Because it is so visible to a vast number of Canadians, it has become a symbol to them of the federal commitment to level the playing field for people with disabilities. This is even more the case given the result of fiscal cutbacks in recent years, when people with disabilities have experienced what they interpret as an erosion of support for their inclusion in Canadian life and society.

Because of their disabilities, over one-third of adults with disabilities report that they face additional costs that are not reimbursed by any public or private program that provides disability-related supports and services.[1] As a result, the federal income tax system (the Disability Tax Credit and the Medical Expenses Tax Credit, among other measures) has assumed increasing importance as a federal tool that assists these individuals to meet some of the unavoidable personal expenses of their disability.

Four times during the past decade, the symbolic importance, visibility, and economic

value of the tax system for persons with disabilities have collided with the policy and administrative approach of the Department of Finance and the Canada Customs and Revenue Agency (CCRA) and its predecessor Revenue Canada. Each time, Finance and the CCRA tried to restrict eligibility for the DTC. Each time, parliamentarians responded to the outcry of Canadians and studied the way that the income tax system treats persons with disabilities. Each time, House of Commons committees and a ministerial task force tabled unanimous reports that contained essentially the same recommendations. All these reports emphasized the need for the tax system to deal in a humane and compassionate manner with Canadians with disabilities by improving the policies and the administration of the income tax system generally -- and the DTC in particular.

This report is the fifth attempt.

THE PRESENT IMPASSE AND ITS ORIGINS

This Committee decided to prepare this report because we find the response to our previous report, Getting it Right for Canadians: The Disability Tax Credit, to be deficient in many respects. First of all, without notifying this Committee or its Chair or our Subcommittee on the Status of Persons with Disabilities or its Chair, the Department of Finance tabled a response to the report on 21 August 2002, in the middle of Parliament’s summer recess. Then on 30 August 2002, the Department of Finance announced proposed amendments to the Income Tax Act that would restrict eligibility for the DTC for people who cannot feed or dress themselves. These proposed amendments were not even mentioned in the response to our report. Over the summer, the CCRA simultaneously proposed revisions to the application form for the DTC that would have restricted eligibility for the DTC even further.

The response to our report professes to respect the parliamentary process. While this may be the case, this respect does not seem to be very profound given that the response equates Parliament and advocacy; it minimizes the Department of Finance’s accountability to any parliamentary body except the Standing Committee on Finance; it omits any mention of the proposed amendments and it fails to respond to two-thirds of our recommendations. The Appendix to this report provides a comparison of each recommendation that we made with the response to each that we received.

On 20 November 2002, we joined our colleagues in the House of Commons to unanimously pass a motion which called upon the government to:

develop a comprehensive program to level the playing field for Canadians with disabilities by acting on the unanimous recommendations of the Committee report “Getting it Right for Canadians: The Disability Tax Credit” in particular the recommendations calling for changes to the eligibility requirements of the Disability Tax Credit so that they will incorporate in a more humane and compassionate manner the real life circumstances of persons with disabilities and withdraw the proposed changes to the Disability Tax Credit, released on August 30^th 2002.[2]

This Committee believes that in order to carry out the House of Commons’ wishes, the Department of Finance and the CCRA must make some administrative and policy changes both in the short term and also to obtain a long-term solution so that this situation does not arise again.

Following the overwhelming endorsement of our report by 234 Members of Parliament, we invited officials from the Department of Finance and the CCRA to a meeting on 21 November 2002 to explain how they proposed to deal with our previous report and the motion.

The officials from the CCRA indicated that with the approval of their Minister they had moved forward in the spirit of our report. Since the government’s response was tabled, the CCRA has responded to the position taken by parliamentarians and the community. The CCRA has agreed:

• to stop all aspects of the review of the eligibility of current DTC recipients until this Committee is comfortable with the redesigned application form (T2201) and accompanying communications to the recipients;

• to follow the request of the disability community by withdrawing the proposed new T2201 application form and using the existing form for the upcoming year until an appropriate form was designed;

• to hold consultations with the disability and medical communities to redesign the T2201 form as this Committee had requested and;

• to establish a permanent advisory committee with representatives of the disability community and medical practitioners to ensure ongoing consultations on administrative issues.[3]

The Committee would like to acknowledge the efforts of the Minister of National Revenue and the CCRA and to thank them for their attempt to resolve some of the more contentious issues around the administration of the Disability Tax Credit.

We find the position of the Department of Finance far less satisfactory and far less responsive in addressing our concerns about DTC policies. For example, in his appearance before our Committee, Serge Nadeau from the Department of Finance stated that:

…the Department of Finance does not interpret the legislation. The legislation, if we look at the Income Tax Act, … spells out clearly that the objective is to provide assistance to the people who have severe and prolonged mental and physical impairments. So it’s not an interpretation. It’s in the Income Tax Act and was voted by Parliament.

He then went on to state that the Department has an “administrative interpretation”[4] of the DTC provisions in the Income Tax Act that is used to decide the level of disability required to obtain the DTC by generally considering “all or substantially all of the time” as 90 per cent of the time.[5] The Department’s view can be summarized as “Interpretation if necessary, but not necessarily interpretation.” Given this contradiction, what should we believe?

In our eyes, an official document created at the time that the DTC was inaugurated is more likely to reflect the intentions of those who authorized the DTC in the first place than the current administrative interpretation of the Department of Finance.

Parliament amended the Income Tax Act and created the Disability Tax Credit to come into effect in 1988.[6] That year, the Department of National Revenue (predecessor to the CCRA) produced a pamphlet How to Certify Disabilities for Income Tax Purposes. This pamphlet, an official publication, provided the government’s interpretation of how medical practitioners could decide whether an individual met the Income Tax Act definition of “disabled” in order to receive the new DTC. The pamphlet sets out the meaning of “severe” and “prolonged” as eligibility criteria and describes the activities of daily living that the DTC refers to. It states that a person may be eligible for the DTC if he or she is unable to perform personal care activities such as preparing, serving and eating meals, washing, bathing and personal grooming. Loss of a lower limb also made an individual eligible, as did psychotic disorders such as delusions or hallucinations that resulted in marked restriction of the activities of daily living. In turn, a “marked restriction” on the activities of daily living was described as one where aids or medications substantially fail to produce sufficient compensation of the impairment with the result that an individual experiences considerable limitation in the activities of daily living[7]. The guidelines go on to say that even if capable of independent living, a person would be eligible if he or she can only achieve such independence with great reliance on other persons or if it takes the individual an inordinate amount of time to complete (with aids) the activities of daily living in comparison with a non-disabled person in the same age group.[8]

In our previous report, this Committee perhaps did not indicate clearly enough that we believe that the Department of Finance and CCRAhave moved the goalposts and made it more difficult for people who apply for and receive the Disability Tax Credit by reinterpreting the Income Tax Act. Given the initial “interpretation” of eligibility for the DTC by the government and the restrictive application of the guidelines that followed, wonder that thousands of Canadians who applied for the DTC in good faith as well as the medical practitioners who followed the government’s instructions in filling out these applications now believe that they have been hoodwinked.

In our last DTC report, the Committee recommended that the CCRA send a letter of apology for the tone and content of the letter sent to those individuals who were asked to re-certify in order to maintain their DTC eligibility. According to the government’s response, the CCRA made every effort to ensure that the tone and content of the re-certification letter were sensitive and appropriate. Obviously, this was not the case, given the many people who were offended by this letter. Moreover, the Committee maintains that more information could have been provided to explain the rationale for the file review and the request for re-certification. Hence, we remain steadfast in our view that the CCRA, which claims to be concerned about maintaining good public relations, should send a letter that provides more detail about its decision to review DTC files and request some individuals to re-certify.

The Committee also believes that any individual who successfully re-qualified for the DTC and who is unable to claim, as a medical expense, any additional costs incurred in doing this should be compensated for these additional costs. In its response to the Committee’s report, the government maintains that any costs incurred to provide supporting documentation should be the responsibility of individuals in a self-assessed tax system. We do not object to this general view; however, we remind the government that these individuals have already incurred these costs as a result of an earlier successful application. These people previously went through the DTC application process in good faith and according to the rules that were in place at the time. We do not support the position that they should bear these costs again.

For this Committee, the vote in the House of Commons on 21 November 2002 reaffirmed our commitment to administer the Disability Tax Credit in a humane and compassionate manner. We hope that we will finally be listened to.

[1] These figures are now 10 years old and can be found in the results of the Health and Activity Limitation Survey (HALS) conducted as a post-censual survey  following the 1991 census.

[2] House of Commons, Debates, 20 November 2002, 15:25.

[3] Standing Committee on Human Resources Development and the Status of Persons with Disabilities (HRDP), Evidence, Meeting No.2 (11:15), 21 November 2002.

[4] Ibid., (11:35).

[5] HRDP, Evidence, Meeting No.2 (11:35), 21 November 2002.

[6] According to the Department of Finance’s 1991 evaluation of the DTC, the 1985 Budget expanded access to the DTC once the disability deduction ended in 1986, but the start date was delayed.

[7] The pamphlet also indicates things that will not be eligible such as unfamiliarity with a spoken language.

[8] This text is largely quoted from the brochure How to Certify Disabilities for Income Tax Purposes, Revenue Canada (Taxation) 1988. The Income Tax Act was amended in 1994 (S.C. c. 7) applicable to the 1991 and subsequent taxation years to add the words “all or substantially all” in referring to the degree to which an impairment restricts the ability to perform one or more activities of daily living.