HUMA Committee Report

AMENDING THE INCOME TAX ACT

Recent court decisions regarding the DTC have stated that eligibility should be determined on a case by case basis and that DTC should be given to a claimant who can demonstrate that, as a result of a disability, he or she requires an inordinate amount of time to carry out an activity of daily living. The Department of Finance, on the other hand, seems to take the position that the Income Tax Act authorizes DTC eligibility policies that exclude all claims for the credit made by all people who belong to certain groups (e.g. celiacs, asthmatics). In such instances, the Department claims to know what Parliament intended when it passed the statute even though, at the time, Parliament did not even consider these specific issues. Ominously, we fear that if Parliament accepts the approach suggested by the Department of Finance in proposing its recent amendments, there is nothing to stop further amendments that exclude other groups on the same basis.

The most recent attempt at exclusion arose in August 2002 when the government proposed a series of amendments to the DTC provisions of the Act that would define “feeding oneself” to be “the physical act of putting food in one’s mouth or swallowing that food.” The Department suggested that this will clarify both for DTC claimants and Tax Court judges, that:

… feeding oneself does not include, for example, choosing food, shopping for food, preparing and cooking food, reading labels and recipes and washing dishes.[9]

According to the government, the amendments “respond to a recent court decision and will ensure that eligibility for the DTC is consistent with the policy intent to target the credit to people who are severely restricted in their ability to perform the basic activities of daily living.”[10]

These proposals, however, do exactly the opposite and propose to amend the Act to reverse the interpretation of the judges and return the DTC rules to what the Department (not the courts or Parliament) suggest are their original meaning. The Department has expressed the view that the court’s interpretation is erroneous because in the line of judicial decisions related to “feeding oneself,” these decisions would extend eligibility to any person with special dietary considerations. The Committee believes that this is not an accurate statement. In their decisions (to which the amendments respond), the Court is clear that a claimant will qualify for the DTC if and only if he or she can demonstrate that they spend an “inordinate amount” of time involved the activities of feeding themselves.

When it comes to feeding oneself, however, the proposed amendments appear to apply a standard of “markedly restricted” that excludes absolutely any person with a medical dietary restriction, no matter how severe nor how disabling. The government appears to be applying a higher absolute standard that goes far beyond the standard that applies to other disabilities. Were this same standard applied to other disabilities, it would “raise the bar” for qualifying for the DTC (e.g. a person’s partial inability to walk, hear or see would no longer qualify). Instead, a person would have to be totally bed-ridden, deaf, blind, etc. We believe, and the courts have confirmed our view, that Parliament intended making decisions on a case-by-case approach and not one that excludes entire groups or classes of claimants based on the cause of their disability. The government’s approach would, as such, appear to depart from the intention of Parliament as expressed in the plain words of the Act.

We fear that if it accepts these proposed amendments, Parliament (or this Committee) will implicitly also be accepting the Department’s restrictive approach. Alternatively, by rejecting the amendments, we are also rejecting the Department’s interpretation and substituting our own humane and compassionate view in order to achieve the true purpose of the legislation. We strongly believe that the Act aims to compensate tax payers with severe disabilities for some of the additional cost that results from their disability.

Neither this Committee nor the courts propose to give the DTC to everyone who suffers from a disability, but we do not want to deny it unduly. In the Johnston decision, Justice Létourneau indicated that the “provisions must be given a humane and compassionate construction.” We agree. The Justice also said that they should not be interpreted “so restrictively as to negate or compromise the legislative intent” which is to “provide modest relief to persons who fall within a relatively restricted category of markedly physically or mentally impaired persons. The intent is neither to give the credit to every one who suffers from a disability nor to erect a hurdle that is impossible for virtually every disabled person to surmount.”[11]

Simply rejecting the proposed amendment, however, might not make Parliament’s intentions clear with regard to the Disability Tax Credit. We believe that this situation needs to be clarified for the benefit of current and future claimants.

We acknowledge a positive step occurred when the Minister of Finance agreed on 29 November 2002 to withdraw its proposed amendments of 30 August 2002 and to “take a fresh look” at how to deal with people with eating disorders. He also asked the Department of Finance to consult further for revised proposals. Eligibility issues related to the administration of the DTC, however, are not restricted – markedly or otherwise – to the nature of the impairment related to feeding or dressing oneself.

Recommendation 1

The Committee recommends that the Minister wait until a full and complete review all of the eligibility criteria for the Disability Tax Credit has been carried out before tabling any revised proposals or amendments. This review should be conducted with the participation of the disability community and medical practitioners.

ELIGIBILITY CRITERIA GOVERNING THE DTC

In our initial report, Getting it Right for Canadians: The Disability Tax Credit, the Committee made several recommendations to modify Section 118.4 [Nature of Impairment] of the Income Tax Act. Although some of these recommendations were designed simply to ensure that this section of the Income Tax Act conformed to recent court decisions, the government characterized these recommendations as changes to the DTC’s eligibility conditions. We do not agree with this characterization, nor do we agree with the terse treatment afforded these recommendations in the government’s response. According to the government’s response, “it is important to remember that the purpose of the DTC is to recognize the effect of supplementary costs incurred due to the effects of a severe and prolonged impairment on an individual’s ability to pay tax. The Committee’s proposed changes need to be further investigated to ensure that this policy intent is respected.”[12] The Committee finds it extremely difficult to comprehend how its recommendations undermine the policy intent of the DTC. Rather, our recommendations that call for modifications to Section 118.4 of the Income Tax Act are designed to strengthen, not weaken, the statutory provisions underlying the policy objective of the DTC.

Basic Activities of Daily Living

In our initial report on the DTC, the Committee recommended several changes to Section 118.4 with regard to basic activities of daily living to better reflect recent case law. Specifically, the Committee recommended that “breathing” be added to the list of basic activities of daily living, that “thinking, perceiving and remembering” be replaced by “thinking, perceiving or remembering” and that “feeding and dressing oneself” be replaced by “feeding or dressing oneself.” The government did not respond directly to this recommendation.[13]

The Committee also believes that the statutory tests associated with speaking and hearing, which require these basic activities of daily living to occur in a “quiet setting” with “another person familiar with the individual”, are unreasonable and contrary to the real life experience of individuals who suffer from these impairments. The government’s response did not address directly the Committee’s recommendation to modify these statutory tests so that they would better reflect everyday situations.

Prolonged Impairment

According to Paragraph 118.4(1)(a) of the Income Tax Act, an individual’s impairment must be “prolonged” to be eligible for the DTC. While we accept that the duration of an individual’s impairment must be extended, we do not accept the current definition of prolonged (i.e. a continuous period of 12 months). This definition is too restrictive and excludes many people whose impairments are serious and long lasting. Moreover, these serious, but periodic, impairments also entail additional non-discretionary spending on basic daily living, which, of course, inhibits the ability to pay tax just like those of people whose impairments last for a continuous period of at least 12 months. The critical element for determining the prolonged nature of the impairment should be its continued or recurrent existence over a long period of time. The government did not respond directly to our initial recommendation dealing with the need to modify the definition of a “prolonged” impairment.

Markedly Restricted in Performing One or More Basic Activities of Daily Living

To be eligible for the DTC, an individual must be markedly restricted in terms of performing one or more of the basic activities of daily living. According to Paragraph 118.4(1)(b) Income Tax Act, a marked restriction is one in which an individual is unable to perform one or more basic activities of daily living “all or substantially all of the time.” On more than one occasion, we have been told by the Department of Finance that the administrative interpretation of these words is 90% or more of the time. While this may be the administrative interpretation used by the Department of Finance or the CCRA in other income tax matters (e.g. deductions for business expenses), the Committee is opposed to its use as the benchmark for quantifying one’s inability to perform a basic activity of daily living. In our opinion, this interpretation was arrived at by stealth through amendments to the Income Tax Act that were passed in 1994 without an adequate explanation of how the Department of Finance intended to apply or “interpret” these amendments. Obviously, an individual who, for example, is unable to perform a basic activity of daily living 75% of the time is markedly restricted in this aspect of daily living. In addition, it might be more appropriate to apply a different threshold to different impairments. As noted in Getting it Right for Canadians: The Disability Tax Credit, individuals who, for example, are unable to remember half of the time may be more markedly restricted in their daily living than individuals who cannot hear 90% of the time.

This administrative interpretation is even more onerous when one considers the fact that the 90% rule is applied individually to each activity of daily living. What about individuals who have multiple impairments? In our view, the cumulative impact of multiple impairments could easily result in a marked restriction in basic activities of daily living. When representatives from the Department of Finance appeared before the Committee on 21 November 2002, the Committee was told that it seems to make sense that someone with multiple impairments, which, when taken individually, do not meet the 90% rule, may be equally or more restricted than someone with an impairment that meets the 90% rule.[14] Unfortunately, this type of discussion was markedly restricted in the government’s response to our recommendation on this matter.

[9] Explanatory Note, DTC, Department of Finance. http://www.fin.gc.ca/drleg/02-071_2e.html

[10] Ibid.

[11] Johnston v. Canada, [1998] F. C .J. No. 169.

[12] Canada, The Government of Canada’s Response to the Seventh Report of the Standing Committee on Human Resources Development and the Status of Persons with Disabilities, 21 August 2002, p. 7.

[13] Although not part of the government’s response to the Committee’s report, the government proposed several amendments to Section 118 of the Income Tax Act. One of these amendments would replace “feeding and dressing oneself” by “feeding or dressing oneself.” These proposed amendments are dealt with elsewhere in this report.

[14] HRDP, Evidence (12:45), Meeting No. 2, 21 November 2002.