Diabetes dispute puts disability tax credit in the spotlight
Earlier this week, Canada joined countries around the world to celebrate the United Nations International Day of Persons with Disabilities. One in seven Canadians currently reports having a disability and this number will only increase as the population ages. Studies show that people with disabilities are more likely to be unemployed, to live in poverty and to earn less than people without a disability.
When it comes to personal tax relief for persons with disabilities, we have a variety of tax credits, the most important one being the disability tax credit (DTC). This credit, which is worth between $1,500 to $2,600 of combined federal and provincial tax relief, also opens up eligibility for other federal or provincial programs such as the registered disability savings plan (RDSP), the disability supplement for the working income tax benefit and the child disability benefit.
In 2016-17, approximately 770,000 individuals claimed the DTC on their income tax returns, representing a combined tax savings exceeding $1.3 billion.
But qualifying for the DTC can be a difficult journey for some, depending on the type of disability. First, the person with the disability (or their legal representative) must complete Part A of Form T2201, Disability Tax Credit Certificate. Then, Part B has to be filled out by the medical practitioner.
Even with the form appropriately completed and certified by your doctor or other qualified medical practitioner, there’s still no guarantee your application for the DTC will be accepted by the Canada Revenue Agency. While the CRA receives an average of 250,000 applications for the DTC annually and more than 80 per cent of these applications are approved, others face an uphill battle to get some tax relief.
A case in point is the ongoing saga some Type 1 diabetes patients are experiencing in their recent DTC applications. This week, JDRF Canada and Diabetes Canada, both leading diabetes organizations, joined together to express disappointment after receiving a copy of internal CRA correspondence from May 2017 demonstrating that a decision was made “to begin systematically denying Type 1 diabetes patients who apply for the DTC.” The memo and departmental e-mails were obtained through an access-to-information request.
By way of background, to qualify for the DTC, an individual must be either blind, “markedly restricted” in at least one of the basic activities of daily living, “significantly restricted in two or more or the basic activities of daily living” or someone who needs “life-sustaining therapy.”
In addition, the individuals’ impairment must be “prolonged,” meaning that it has lasted, or is expected to last for a continuous period of at least 12 months and is present all or substantially all of the time.
To qualify under the life-sustaining therapy criterion, the therapy must be needed to support a vital function and the therapy must be needed at least three times per week, for an average of at least 14 hours a week.
It is this final point that was the subject of the CRA directive. “Unless there are exceptional circumstances, adults with diabetes can generally manage their daily insulin therapy without taking 14 hours per week,” the internal CRA memo read.
Last month, Frank Vermaeten, the CRA’s Assistant Commissioner, told the Commons finance committee that the CRA stopped processing all DTC applications made by diabetics for a period of time this past year.
This week, JDRF and Diabetes Canada demanded that the CRA “immediately rescind the modification made … with respect to the procedures CRA employees are expected to follow for DTC applications from Canadians with Type 1 diabetes. CRA should have confidence in their own system, which has medical practitioners conducting the initial eligibility screening, and restore the process of accepting certifications from doctors and nurses regarding their patients’ individual circumstances.”
Hundreds of adults with Type 1 diabetes who were previously approved for the DTC have suddenly been denied the DTC since May. As a result, these patients have been told by the CRA that they will have to close their RDSPs, with the result that government will claw back up to 75 per cent of the value in those accounts.
“The medication and medical devices needed to manage Type 1 diabetes can cost Canadians up to $15,000 out of pocket annually and if the Minister doesn’t commit to reversing course, many Canadians with Type 1 diabetes will not have the resources required to manage their disease in the future,” says Dave Prowten, President and CEO, JDRF Canada.
In late October, JDRF and Diabetes Canada sent a joint letter to the CRA containing various recommendations. One was that the CRA should revive the Disability Advisory Committee, which was dissolved in 2006.
Last month, the government did just that. The Committee’s core role will be to provide advice to the CRA on the administration and interpretation of the laws and programs related to disability tax measures administered by the CRA, and on ways in which the government can take into consideration the needs and expectations of the disability community as well as increase awareness and take-up of measures for people with disabilities.
The joint letter also recommended legislative change, by suggesting that the eligibility criteria in the Tax Act be “modernized and amended,” including reconsidering the ongoing relevance of the 14 hour per week requirement.
In the meantime, Diane Lebouthillier, Minister of National Revenue, issued a statement this week responding to the Type 1 diabetes DTC eligibility controversy saying that “no change has been made to the eligibility criteria for this credit, nor has a change been made to the criteria laid out in the legislation. Every file is examined on a case-by-case basis with the facts provided in the application forms of the individual and their medical practitioner. The CRA does not have a target rate for approvals or denials of the DTC.”
On Friday, the CRA issued a news release naming the 14 members who will serve on the Advisory Committee. It also indicated that CRA will go back to using the pre-May 2017 doctor clarification letter for DTC applications related to Life-Sustaining Therapy. The CRA will also review the applications that have been denied since May 2017 and individuals do not need to submit new or additional information unless they are contacted by the CRA.