Diabetes and RDSP confusion

National Post


Last week's Family Finance column profiled a young couple, Tim and Kathleen, and mentioned that Tim's disability, diabetes, qualifies him to open a registered disability savings plan.

Eligibility to open an RDSP is dependent on qualifying for the disability tax credit (DTC). That diabetes would entitle an individual to claim the DTC surprised some readers, who asked for clarification.

Under the Income Tax Act, the DTC is available to people with a "severe and prolonged impairment in physical or mental functions" which markedly restricts one or more of the individual's basic activities of daily living or would markedly restrict an activity if it wasn't for "life sustaining therapy."

Life-sustaining therapy is therapy that an individual requires to support a vital function and is administered at least three times per week for an average of at least 14 hours per week.

The purpose of this rule is to allow individuals to be eligible for the DTC if they must have life-sustaining therapy that requires them to dedicate a significant amount of time away from their normal, everyday activities to receive the therapy.

In 2005, the tax rules were amended to state that if the therapy has been determined to require a regular dosage of medication that needs to be adjusted on a daily basis, the activities directly involved in determining the appropriate dosage are considered part of the therapy.

As a result of this change, a child with Type 1 diabetes who is unable to independently adjust his or her insulin dosage may now qualify for the DTC taking account into time spent by his or her parents in assisting the child to administer the insulin.

Since the amendment passed, there have been at least two reported cases in which the CRA challenged the DTC in respect of Type 1 diabetes.

The first case, from 2008, involved a taxpayer whose DTC was denied despite his claim that he spent 23 hours per week on his therapy. His doctor, a diabetes specialist, estimated that the amount of time that his patient should require "is a few hours per week." The judge denied the DTC finding that the taxpayer's "assessment of the amount of time required in order to do certain things is exaggerated." The second case, decided last year, involved a 12-year-old B.C. girl. The Tax Court found she did not qualify for the DTC since she spent an average of only seven hours per week to administer and adjust her dosage.

Note that according to the government, life-sustaining therapy provisions alone will not necessarily allow diabetes sufferers to qualify for the DTC if they are able to receive therapy "in a manner that does not significantly affect their everyday activities" such as may be the case where insulin is administered by means of a portable device which may not necessitate spending 14 hours per week on such therapy.