Getting CRA to allow disability tax credit can be an ordeal parents must fight in court

National Post


For people living with disabilities, the most valuable tax credit for them or their supporting family member is the disability tax credit (DTC). For 2021, it can be worth between $1,609 (Quebec) and $2,793 (Alberta) of combined federal and provincial tax savings, depending on your province of residence.

The stated purpose of the DTC is to provide tax relief for non-itemizable, disability-related costs of someone who has been certified by a qualified medical practitioner as having a “severe and prolonged disability.” The credit amount is indexed to inflation annually and can be transferred to a supporting spouse, common-law partner, parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nephew or niece of the individual. Families caring for eligible children with severe and prolonged impairments may be able to claim an additional amount as a supplement to the credit, making the DTC even more valuable.

According to the 2021 Report on Federal Tax Expenditures published last month, 1.2 million individuals claimed an amount for the DTC for 2018 (the year covered by the report.) This includes about 770,000 eligible persons who claimed all or some portion of the credit for themselves, 150,000 individuals who claimed all or some portion of the credit on behalf of an eligible spouse or partner, 260,000 individuals who claimed all or some portion of the credit transferred from an eligible person (such as a parent for a minor child), and 30,000 individuals who claimed all or some portion of the credit for themselves and on behalf of another eligible person. According to the report, the projected cost of the DTC for 2021 is estimated to be about $1.3 billion.

Yet qualifying for the DTC has been an uphill struggle for many Canadians. According to a 2019 report of the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities, while approximately 89 per cent of applications for the DTC were approved for the fiscal year 2016-2017, applications for mental functions had approval rates of only 81 per cent. That same year, the Disability Advisory Committee, which is made up of professionals from various fields, such as health professionals, lawyers, accountants and tax professionals, as well as advocates of the disability community, representatives of Indigenous communities, and persons with disabilities, released its first report. Among its 42 recommendations was that the Canada Revenue Agency should make it easier for more Canadians to qualify for the DTC, making eligibility criteria for physical and mental functions clearer and more clinically accurate.

A recent tax case, decided last week, shows the struggles a Calgary mom had to go through to be able to claim the DTC for her son. She was appealing a decision of the CRA which denied the DTC for her son for the 2013 through 2018 tax years. Her son was between nine and 15 years of age during the tax years under review.

During this period, the taxpayer’s son had significant behavioural difficulties. In 2013, he was diagnosed with attention deficit hyperactivity disorder (ADHD), yet, even with ADHD medication, he was “argumentative, aggressive and angry.” The taxpayer stated that her son needs “100 per cent assistance to help him adapt to social cues and to learn to use correctly the right behaviour in social interactions, with his sibling and peers.”

The CRA, in a 2019 letter to the taxpayer denying her claims for the DTC, wrote that while it acknowledged “that (the child’s) impairment is prolonged and (it does) not question the seriousness of his medical condition … based on the examples from (his doctor), (he) is not considered markedly restricted in performing the mental functions necessary for everyday life.” Thus, the issue before the Tax Court, was what exactly is considered “markedly restricted.”

A psychological assessment report prepared by a registered psychologist of the Calgary Board of Education from 2017 includes two paragraphs headed “clinical impression,” wherein the psychologist wrote that the child “meets DSM-V diagnostic criteria for Unspecified Disruptive, Impulse-Control and Conduct Disorder…. This diagnosis reflects that although his symptoms do not meet the full criteria for any of the disorders in this category, (his) behavioural difficulties appear to significantly affect his day-to-day functioning.”

The psychologist went on to observe that the child “had difficulties managing his emotional and behavioural impulses at home and at school; frequently lost his temper and presented as resentful/angry; intentionally annoyed others; refused to comply with adult requests at school; has bullied, threatened, and intimidated others; and may have been physically aggressive with others.”

The DTC application, prepared in 2018 by the child’s paediatrician, referred to his ADHD, the psychologist’s assessment report, and also diagnosed the child with learning disabilities (LD). As she concluded, “the combination of ADHD, LD, conduct disorder and very low intellectual abilities has caused (the child) to have marked restrictions in the mental functions necessary for everyday life.”

The child’s mother testified that his impairment does, indeed, markedly restrict his ability to perform mental functions necessary for everyday life. She testified that her son needs her support “virtually 100 per cent of the time every day to be successful.” She contends that while the CRA acknowledges her son’s ADHD, it does not seem to appreciate the “full extent of his mental struggles, that he lives with every day.”

Traditionally, in the context of mental functions, “markedly restricted” has been interpreted to mean that all or substantially all of the time the individual is unable to, or requires an inordinate amount of time to, perform mental functions necessary for everyday life including memory, problem-solving, goal-setting and judgment (taken together), and adaptive functioning. The CRA was simply unable to accept that the child was “markedly restricted” in his ability to perform these relevant mental functions.

The judge referred to the “adaptive functioning” wording in the Income Tax Act as it relates to social interactions and concluded that the evidence in the case has established that the child “is seriously lacking in ability to engage in social interactions … not just from time to time, but rather substantially all of the time.”

The judge, interpreting the term “adaptive functioning” on a “humane and compassionate basis” (as required by prior jurisprudence) therefore ruled that the DTC should be allowed for each of the tax years from 2013 through 2018, concluding that the child is “markedly restricted in respect of the adaptive functioning aspect of mental functions necessary for everyday life.”