The Government of Canada's Response to the First Report of the Standing Committee on Human Resources Development and the Status of Persons With Disabilities
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Introduction

On December 11, 2002, the Standing Committee on Human Resources Development and the Status of Persons with Disabilities tabled the report entitled Tax Fairness for Persons With Disabilities. In the report the standing committee makes seven recommendations dealing with policy and administrative issues concerning the disability tax credit (DTC).

The standing committee raises a number of important issues in its report. The Government appreciates the valuable input it receives from the standing committee as it moves forward on the goal of supporting full participation for persons with disabilities in Canadian society.

Several of the issues raised by the committee are addressed in whole or in part through measures contained in the budget tabled in the House of Commons on February 18, 2003. Therefore, before answering each recommendation separately, this response reviews the measures for persons with disabilities proposed in the budget.

Review of 2003 Budget Measures for Persons With Disabilities

The 2003 budget adds to-and builds upon-measures introduced in previous budgets to provide financial assistance and tax relief to persons with disabilities. In particular, the budget proposes a new Child Disability Benefit, an expansion of the list of expenses eligible for the medical expense tax credit, a measure to allow more infirm children to receive a tax-free rollover of a deceased parent's or grandparent's registered retirement savings plan or registered retirement income fund proceeds, and measures to clarify the eligibility criteria for the DTC. The budget also announces the establishment of the Technical Advisory Committee on Tax Measures for Persons With Disabilities and renews funding for the Employability Assistance for People with Disabilities program.

A New Child Disability Benefit

Caring for children with severe disabilities imposes a heavy burden on families, especially low- and modest-income families, and it is important that these children realize their potential. In recognition of this the budget proposes a new $1,600 Child Disability Benefit. The full $1,600 per-child benefit will be paid to all families receiving the National Child Benefit supplement and who have a child who qualifies for the DTC. Families will continue to be able to claim the DTC and the DTC supplement for children.

More Expenses Made Eligible for the Medical Expense Tax Credit

The list of expenses eligible for the medical expense tax credit (METC) is regularly reviewed and expanded in light of new technologies and other disability-related expenses. In order to better recognize specific disability-related costs, the budget proposes to expand the list of expenses eligible for the METC to include:

• the cost of real-time captioning used by individuals with a speech or hearing impairment;
• the cost of note-taking services used by individuals with mental or physical impairments;
• the cost of voice recognition software used by individuals with a physical impairment; and
• with celiac disease who require a gluten-free diet.

Recognizing the Special Need for the Ongoing Care of a Financially Dependent Infirm Child

One of the most important concerns for parents caring for an infirm child is to ensure that the child will be properly provided for in the event of the parent's death. A financially dependent infirm child is eligible to receive a tax-free rollover of a deceased parent's registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) proceeds. In recognition of the special need for the ongoing care of financially dependent infirm children and to provide supporting parents with greater certainty in their estate planning, the budget proposes to increase the level of income used to determine the financial dependence of an infirm child for the purpose of these rules from $7,634 to $13,814, effective in 2003. As a result, more infirm children or grandchildren will be able to receive a tax-free rollover of a deceased parent's or grandparent's RRSP or RRIF proceeds.

Clarifying the Eligibility Criteria for the DTC

The budget proposes three measures to clarify the eligibility criteria for the DTC.

The first measure ensures that individuals markedly restricted in either feeding or dressing themselves will continue to qualify for the DTC.

The second measure specifies that the activity of "feeding oneself" does not include any of the activities of identifying, finding, shopping for or otherwise procuring food, or the activity of preparing food to the extent that the time associated with that activity would not have been necessary in the absence of a dietary restriction or regime.

The third measure specifies that the activity of "dressing oneself" does not include the activities of finding, shopping for and otherwise procuring clothes.

The last two measures contribute to ensuring that the DTC continues to be provided to those most in need. They are in response to the March 2002 Federal Court of Appeal decision in The Queen v. Hamilton, which could have extended eligibility to individuals who, because of food allergies or other similar conditions, must spend an inordinate amount of time to shop for and prepare suitable food. This would have gone beyond the intent of the DTC and significantly increased its cost. As a result, draft amendments to clarify the DTC eligibility criteria were released on August 30, 2002. Following representations from parliamentarians and the community of persons with disabilities, the Minister of Finance announced on November 29, 2002, that the Department of Finance would consult further to develop revised proposals to be considered for inclusion in the 2003 budget.

The measures proposed in the 2003 budget were developed following consultations held in December 2002 and January 2003 with representatives of the community of persons with disabilities and medical practitioners. The revised amendments are less restrictive than those proposed in August 2002 in that they ensure that individuals who are markedly restricted in their ability to prepare a meal for reasons other than a dietary restriction or regime (such as severe arthritis) will continue to be eligible for the DTC. However, individuals will not be eligible for the DTC solely because of the amount of time spent finding or procuring food or clothes. As further follow-up to these consultations, and as noted above, the budget extended the list of expenses eligible for the METC to include the incremental cost associated with the purchase of gluten-free food products for individuals with celiac disease who require a gluten-free diet.

Ensuring the Effectiveness of the DTC

Through the DTC the federal tax system gives recognition to the effect of a severe and prolonged mental or physical impairment on an individual's ability to pay tax. Individuals with severe and prolonged mental or physical impairments often face additional non-discretionary expenses for basic daily living, which reduce their ability to pay tax. The DTC provides $400 million annually to about 450,000 Canadians with a severe disability or to those who care for them. The Government has listened to the community of persons with disabilities, medical professionals and parliamentarians and determined that more needs to be done to ensure that the DTC effectively meets its intended purpose.

As stated in the Government's August 2002 response to the Seventh Report of the Standing Committee on Human Resources Development and the Status of Persons with Disabilities, the Government will be conducting an evaluation of the DTC as data from the 2001 Participation and Activity Limitation Survey becomes available. The objective of the evaluation will be to determine whether the DTC is achieving its policy purpose.

In addition, the budget announced the establishment of the Technical Advisory Committee on Tax Measures for Persons With Disabilities, which will advise the Ministers of Finance and National Revenue. The committee is chaired by Sherri Torjman, Vice-President of the Caledon Institute of Social Policy, and Robert Brown, a tax expert and former chair of the Canadian Institute of Chartered Accountants. The committee comprises members of organizations representing persons with disabilities, medical practitioners, and private sector tax experts. Over a period of 18 months the committee will assist the Government in addressing issues identified by the community of persons with disabilities, in a manner that is consistent with the purpose of the DTC and that takes into account available fiscal resources. Issues that could be examined by the committee include, for example:

• eligibility for the DTC, particularly for persons who suffer from episodic and mental conditions;
• the list of activities of daily living used to determine eligibility for the credit;
• the identification of professionals allowed to certify eligibility; and
• administrative policy and procedures surrounding the determination of eligibility for the DTC.

The budget sets aside $25 million in 2003-04 and $80 million per year starting in
2004-05 to improve assistance for persons with disabilities, drawing on the evaluation of the DTC and the advice of the technical advisory committee.

Once fully implemented, the changes announced in the budget will provide an additional $160 million per year in assistance to persons with disabilities. As a result, tax relief for persons with disabilities or medical expenses and those who care for them will have more than doubled since 1996 from $600 million to about $1.3 billion per year.

Renewal of the Employability Assistance for People With Disabilities Program

In addition to tax measures, the budget renews the federal government's existing funding commitment of $193 million per year for the Employability Assistance for People with Disabilities program. This program benefits over 200,000 Canadians with disabilities each year and represents an important part of the Government's commitment to improve the participation of disabled persons in the workforce.

Responses to Committee Recommendations

Recommendation 1

The Committee recommends that the Minister wait until a full and complete review of all 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.

Response

Evaluations and consultations play a central role in ensuring the effectiveness of tax policies.

As set out in Budget 2003 the Government will be conducting an evaluation of the DTC this year as data from the 2001 Participation and Activity Limitation Survey becomes available. The objective of the evaluation will be to assess the effectiveness of the DTC. In addition, the Government has announced the establishment of the Technical Advisory Committee on Tax Measures for Persons With Disabilities. Issues that will be examined by the committee and that could be explored further as part of the evaluation include the eligibility criteria for the DTC.

In assessing further changes to the DTC eligibility criteria, the Government could therefore draw on the expert advice of the technical advisory committee and on the results of the evaluation of the DTC.

Nevertheless, particular circumstances may arise that warrant an immediate response from the Government. For example, as previously noted, the March 2002 Federal Court of Appeal decision in The Queen v. Hamilton has significant implications regarding eligibility for the DTC, in that the decision could extend eligibility beyond the intent of the DTC. Draft amendments to clarify the DTC eligibility criteria were released on August 30, 2002. Following consultations with representatives of the community of persons with disabilities and medical practitioners in December 2002 and January 2003, revised proposals were developed to respond to this court decision that are less restrictive than those released in August 2002. The Government's analysis indicated that postponing the announcement and implementation of these proposed legislative changes would entail a significant fiscal cost. Therefore, it was appropriate to include these proposed changes as part of the 2003 budget.

Recommendation 2

The Committee recommends that the Government immediately amend the

Income Tax Act by:

(a) Adding "breathing" to the list of basic activities of daily living in paragraph 118.4

(c);

(b) Amending the wording in subparagraphs 118.4(1)

(c)(i) and (ii) to replace "thinking, perceiving and remembering" and "feeding and dressing oneself" by "thinking, perceiving or remembering" and "feeding or dressing oneself."

(c) Rewording subparagraphs 118.4(1)

(c)(iii) and (iv) in order to better reflect the everyday situations of individuals with severe speaking and hearing impairments.

Response

The 2003 budget responds to one of the changes suggested in Recommendation 2(b). One of the amendments proposed in the budget will ensure that individuals markedly restricted in either feeding or dressing themselves will continue to qualify for the DTC.

Other recommended changes require further study and are among the questions that could be considered by the technical advisory committee announced in the budget.

Recommendation 3

The Committee recommends that, following consultations with organizations representing persons with disabilities and medical practitioners, the Government amend the

Income Tax Act to:

(a) Define "markedly restricted" in the context of each of the basic activities of daily living or some combination thereof. The Committee believes that these changes must clarify the meaning of "all or substantially all of the time" to reflect the reality of living with a disability; and

(b) Redefine "prolonged" in order to capture individuals who have an impairment that is substantial and recurrent, although not necessarily lasting for a period of 12 continuous months.

Response

The issues identified in this recommendation also require further study and are among the issues that could be examined by the technical advisory committee announced in the budget.

Recommendation 4

The Committee recommends that all forms used to assess eligibility for the Disability Tax Credit be redesigned. The new Form T2201 should conform to the

Income Tax Act; be less prescriptive; afford greater prominence to, and space for, a qualified person's diagnosis; and be designed primarily to meet the needs of applicants instead of those who process the applications. If necessary, the form should be either expanded or separated into different forms so that it (or they) contain questions related to an individual's specific disability. A revised form should be referred to the Standing Committee on Human Resources Development and the Status of Persons with Disabilities for consideration and study well in advance of its printing date.

Response

The Canada Customs and Revenue Agency (CCRA) is committed to redesigning Form T2201. This effort will take into consideration the feedback received from parliamentarians, the community of persons with disabilities and the medical community on the August 2002 draft and the results of upcoming planned consultations. The CCRA will also be alert to the progress of the evaluation of the DTC that will be conducted by the Department of Finance, and recommendations emanating from the recently announced Technical Advisory Committee on Tax Measures for Persons With Disabilities.

There have been conflicting opinions between advocates for the disabled and health professionals as to how the form should be revised. Indeed, there were conflicting points of view within each of these two groups on possible revisions to the form. The challenge in redesigning the form will be to balance the needs and views of persons with disabilities and the needs of health professionals while maintaining the integrity of the eligibility requirements of the legislation.

The CCRA's primary objective in revising the form is to clarify and increase awareness of the DTC legislative criteria for both taxpayers and the health professionals allowed to certify eligibility for the DTC (referred to as "qualified persons"). By achieving this objective,

• taxpayers will be in a better position to know if they qualify for the DTC and, therefore, whether to have the form completed by a qualified person;
• the frequency of qualified persons having to provide supplementary information, subsequent to completion of the form, will be minimized;
• confusion about eligibility criteria for the DTC compared to other programs (e.g. Canada/Quebec Pension Plan disability benefits) will be reduced; and
• the CCRA's effective and efficient administration of the DTC program will be enhanced.

The new Form T2201 will be provided to the standing committee in advance of its publication.

Recommendation 5

The Committee recommends that when the CCRA rejects an application for the DTC, the Agency provide the claimant with a written explanation setting out the reasons that the application has been refused and setting out the applicant's rights and procedures for an appeal.

Response

The CCRA already provides an explanation of the denial of a DTC claim on the individual's Notice of Assessment (or Notice of Reassessment). Depending on the complexity of the case, the CCRA may also provide an explanation in a personal letter. The CCRA is conducting a review of all personal letters and pertinent information on the Notice of Assessment to clarify and, as required, to elaborate on the reasons the individual is not eligible for the DTC.

The Notice of Assessment contains information on the individual's right to appeal. This information is often, but not always, provided in personal letters. When making improvements to its personal letters with respect to non-eligibility, based on the above-mentioned review, the CCRA will include information on when and how a person may appeal.

Recommendation 6

The Committee recommends that the government:

(a) undertake a comprehensive examination of all the federal tax system's measures to support persons with disabilities;

(b) as part of this examination, prepare and release a public discussion paper by 31 December 2003 outlining possible options for reform. This paper should specifically include a discussion of combining tax measures (e.g. the Disability Tax Credit and the Medical Expenses Tax Credit), refundability and a registered savings plan (with a grant component like the RESP [registered education savings plan]) for children with disabilities who may not be able to benefit from higher education but who require financial support to live;

(c) use the consultation paper as the basis for public consultations to be conducted in a transparent manner with the participation of all stakeholders; and

(d) report the outcome of these discussions and present an action plan for legislative and administrative changes to this Committee by 1 September 2003

[sic].

Response

The Government has listened to the community of persons with disabilities, medical professionals and parliamentarians and determined that more needs to be done to ensure that the DTC effectively meets its intended purpose. The evaluation of the DTC, which will be conducted as data from the 2001 Participation and Activity Limitation Survey becomes available, will constitute an important examination of the effectiveness of the DTC and may identify areas for change. The results of the evaluation will be made public.

In addition, as set out in the budget, the Government has established the Technical Advisory Committee on Tax Measures for Persons With Disabilities. This committee will advise the Ministers of Finance and National Revenue on possible legislative and administrative changes in respect of tax measures benefiting persons with disabilities, including the DTC and the METC, and, at its discretion, other tax issues pertinent for persons with disabilities.

This establishes a process to provide advice to the Government on tax issues concerning the community of persons with disabilities that involves representatives of the community and medical professionals.

Recommendation 7

The Committee recommends that the Government:

(a) consider making the Disability Tax Credit refundable for families who have children with severe disabilities; and

(b) acknowledge that refundability for families with severely disabled children is the first step in addressing the needs of the poorest Canadians with severe disabilities.

Response

As indicated earlier, in recognition of the heavy burden faced by families caring for severely disabled children, the 2003 budget introduces a $1,600 Child Disability Benefit (CDB), which is expected to deliver $50 million in benefits annually to 40,000 families. The CDB will be delivered as a supplement of the Canada Child Tax Benefit (CCTB), and will be paid for children qualifying for the DTC.

The CDB is superior to refundability of the DTC and DTC supplement for children for the following reasons:

• The CDB will provide assistance to twice as many families-40,000 low- and modest-income families compared with an estimated 20,000 families who would benefit from a refundable DTC for children.
• In addition to providing benefits to more families, the CDB will also provide larger benefits to many low-income families. Indeed, the CDB will provide the full $1,600 benefit to all low-income families eligible for the National Child Benefit supplement, that is, families with an annual income of up to $33,487 (for families with three or fewer children). A refundable DTC would typically not have provided full assistance to all families in this income range and would have provided no benefit to families with incomes over $25,000.
• Benefits will be delivered as a supplement to the CCTB, an existing mechanism that already provides monthly income-tested benefits for families with children.

The new CDB will complement the DTC and the DTC supplement for children, which recognize the reduced ability to pay tax arising from disability-related costs.

With regard to assistance for persons with disabilities more generally, the budget sets aside $25 million in 2003-04 and $80 million per year starting in 2004-05 to improve assistance for persons with disabilities, drawing on the evaluation of the DTC and the advice of the technical advisory committee.

In addition, the budget renews the federal government's existing funding commitment of $193 million per year for the Employability Assistance for People with Disabilities program. This program benefits over 200,000 Canadians with disabilities each year and represents an important part of the Government's commitment to improve the participation of disabled persons in the workforce.

It is worth noting that these budget initiatives complement other programs and services for persons with disabilities such as the Canada Pension Plan: Disability, the Opportunities Fund, Canada Study Grants, veterans' disability pensions and the Social Development Partnerships Program. Total assistance directed towards persons with disabilities amounts to about $5.4 billion per year in programs and services and $1.3 billion in tax relief per year (once the 2003 budget measures are fully implemented). Provinces and territories are also providing assistance to persons with disabilities through tax measures, income support and disability supports programs.

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