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TAXFlash News from IncomeTaxCanada.net
:: Disability tax credit clarified by Finance Canada to establish eligibility criteria
:: Disability – it’s a big issue today and I expect it to become an even bigger issue in the future now that the baby boom bubble has joined the over-the-hill gang. Hot on the heals of the Romanow Report, Finance Canada issued a backgrounder at the end of last month providing information regarding proposals to “clarify” eligibility criteria under the Income Tax Act for the disability tax credit. Recall the disability tax credit (DTC) is a non-refundable tax credit available to taxpayers with a “severe and prolonged mental or physical impairment” where the “effects of the impairment are such the individual’s ability to perform a basic activity of daily living is markedly restricted”. In B.C., for 2002, the DTC will be $6,126 – this translates into a real tax saving of roughly $1,350 for taxpayers eligible to claim this credit. Because this tax credit is non-refundable, taxpayers won’t receive a cheque in the mail for this amount – essentially, taxpayers have to be taxable to receive the full benefit of the DTC. To apply for the DTC, taxpayers must have a “qualified person” (generally a medical doctor, optometrist and certain other health care professionals) complete form T2201. This form has been subject to numerous revisions over the years – each new revision requiring disclosure of greater detail regarding the nature of the disability. Indeed, the most recent revision was distributed to interested parties in draft form on August 28, 2002. Prior to 1996 CCRA accepted DTC applications upon assessment of individual tax returns. A much stricter regimen is now followed wherein all new DTC claims are reviewed prior to granting the credit – in essence the process is now approval first, credit later rather than the other way around. In March of this year, the Federal Court of Appeal rendered a decision that broadened the DTC parameters. The subject ruling allowed for DTC eligibility of individuals who, because of food allergies or other similar medical conditions, must spend an inordinate amount of time to find and prepare suitable food – think of it as DTC eligibility for spending too much time grocery shopping and cooking. Does this look like the DTC door has been opened wider, in fact, a lot wider? Well CCRA thinks so when they state that the decision “would expand eligibility for the DTC far beyond the intent of this policy”. Can you see a tightening of the rules in the offing? Currently, the DTC provides approximately 450,000 eligible Canadians with tax relief in the neighbourhood of $400 million. Left in its current state, those eligible for a DTC and the tax relief they enjoy can only increase. Not wanting to see these numbers escalate, our government is faced with the unenviable task of targeting eligibility of the DTC to those most in need. To this end, CCRA started a pilot project in 2000 to review DTC claims submitted during the years 1985 through 1996. This project revealed “a significant number of individuals should not have qualified for the credit, should have been approved only on a temporary basis, or did not have sufficient information in their file to determine if they were eligible”. In plain English, the government felt that more money was paid out under the DTC than should have been. With this belief in mind, the pilot project became a full-blown review. CCRA maintains “the purpose of the current review is to ensure that all claimants who applied for the credit are treated fairly and consistently, and that the DTC is administered in accordance with its requirements”. A cynic is forgiven for thinking the real purpose of the review is to keep a lid on the number of taxpayers eligible for the DTC and controlling the dollars paid out. According to CCRA, 106,000 individuals were asked to re-certify their DTC eligibility for 2001 and subsequent years. Of the 90,000 that responded CCRA notes 60,000 were determined to continue to qualify for the DTC. Although not explicitly stated in CCRA’s backgrounder, the corollary is that 30,000 individuals were found not to qualify. If you add in the 16,000 who didn’t respond and presumably had their DTC bounced, the number rises to 46,000 or 43 per cent of the chosen group. Clearly, CCRA’s DTC review project has paid big dividends. But have no fear, the backgrounder notes the Minister of National Revenue “has instructed CCRA officials not to proceed with any new administrative review projects until further consultations have taken place and the necessary changes have been completed”. That ought to help disabled Canadians sleep a little easier at night. So what’s up from here on? Well, in the wake of the above noted Federal Court of Appeal decision, the Department of Finance is working to “develop appropriate revised amendments” and will meet with organizations representing persons with disabilities. Written submissions will be accepted until January 17, 2003 with additional details available at the Department of Finance web site (fin.gc.ca). Evidently seeing no need to await the outcome of this consultation process, CCRA has established a new, permanent Administrative Advisory Committee on Disability, to include representative organizations and medical practitioners the purpose of which is to “ensure ongoing consultations on administrative issues”. At the end of the day, Canadians can expect significant tightening of the rules surrounding the disability tax credit. In the early 1990s, a taxpayer named Thibaudeau fought against paying income tax on the child support payments she received. Although she lost her case before the Supreme Court of Canada, her cause was a catalyst for a change that saw “support amounts” become non-taxable. At the time, this was heralded as a significant breakthrough by many interested parties until they discovered that many recipients of “support amounts” were actually worse off under the new regime. Could a similar outcome be in the wings in light of the Court of Appeal decision on the DTC to include individuals who, because of a medical condition, are required to spend inordinate amounts of time shopping and cooking? I’d say you can count on it.
Free Tax Advice Article Submitted to Income Tax Canada.net exclusively by Jim Maroney Official details about this and other topics on income taxes can be found in English & Francais at www.ccra-adrc.gc.ca Income tax information offered by www.IncomeTaxCanada.net is done so without endorsement by Canada Revenue Agency (CRA) - l'Agence du Revenu du Canada (ARC) (formerly Canada Customs and Revenue Agency - l'Agence des Douanes et du Revenu du Canada CCRA-ADRC and formerly Revenue Canada – Revenu du Canada) or any Canadian government agency. The free advice is of a general nature for Canadian taxpayers seeking legal ways to reduce their personal and small business income taxes payable to the federal and provincial (or territorial) governments in Alberta, British Columbia, Manitoba, New Brunswick Newfoundland-Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan or Yukon. Specific taxation situations vary from taxpayer to taxpayer, province to province, territory to territory. The free tax advice here is only a general guide. Canadians should always seek individual guidance on accounting rules and tax laws from knowledgeable accountants and lawyers. To prepare your income tax return online and NetFile your Canadian income taxes electronically in English or Francais, please visit www.ufile.ca or www.impotexpert.ca websites. Additional information on financial products and services for Canadians can be found at www.CanadianCreditCenter.com. |
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Jim Maroney