Review of Disability Tax Credit and Registered Disability Savings Plan

By Lila Refaie, Staff Lawyer

On June 27, 2018, the Standing Senate Committee on Social Affairs, Science and Technology (“Committee”) released a report about the Disability Tax Credit and the Registered Disability Savings Plan. The report is called Breaking Down Barriers: A critical analysis of the Disability Tax Credit and the Registered Disability Savings Plan.

In this report, the Committee analyzed the existing programs and concluded that a major reform is needed. The Committee put forward a list of 16 recommended changes for the federal government to consider in the hopes of improving both programs for persons with disabilities. The recommendations include a variety of changes, affecting everything from the administration of the programs to more permanent legislative amendments.

What is the Standing Senate Committee on Social Affairs, Science and Technology?

This Committee is one of a number of permanent committees created by the Senate. Each committee has its own expertise in a particular area and is tasked with reviewing bills or conducting studies in that area. There are similar committees of the House of Commons. Only members of the House of Commons or the Senate can be members of a committee. However, under certain conditions, anyone, including members of the public, can make oral or written submissions to the committee if they have a particular interest in a bill or a study. Anyone who appears before the committee to speak on an issue is called a witness.

Before a committee studies a particular bill or issue, the Senate (or the House of Commons) must refer the bill or issue to the committee. This is done by an Order of Reference. Usually the Order of Reference outlines the details of the work the committee has to do and the deadline to report back to Parliament.

The Standing Senate Committee on Social Affairs, Science and Technology reviews a broad range of bills and issues, including, for example, the legalization of cannabis, the development of artificial intelligence in Canada’s health care system and forced adoptions in Canada.

What is the Disability Tax Credit?

The Disability Tax Credit (“DTC”) is a non-refundable tax credit for eligible persons with disabilities. Tax credits serve to lower the amount of income tax someone may have to pay to the Canada Revenue Agency (“CRA”). Once eligible, this tax credit can be claimed by the person with a disability or transferred to their caregiver, under some circumstances.

The DTC also serves an additional purpose. Those eligible for the DTC can further apply to other disability-related programs and benefits offered by the federal government, such as the RDSP, as well as some provincial and municipal government benefits.

A person is eligible for the DTC if they meet certain conditions, which must be certified by a medical practitioner in a form provided by the CRA. First, they must have a “severe and prolonged disability”. The disability must be present “all or substantially all of the time”. Second, the person must meet one of the following conditions:

  • The person has a visual impairment;
  • The person is markedly restricted in at least one of the basic activities of daily living;
  • The person is significantly restricted in two or more or the basic activities of daily living; or
  • The person needs life-sustaining therapy.

For more information about the DTC eligibility, go to: https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html

What is the Registered Disability Savings Plan?

The Registered Disability Savings Plan (“RDSP”) is a savings plan for eligible persons with disabilities. The RDSP is part of the Canadian Disability Savings Program, which helps some persons with disabilities save money for the future. Its specific purpose is to ensure long-term financial security for that person.

To qualify for the RDSP, the person with a disability must first be eligible for the DTC. Generally, a person with a disability over the age of 18 can open an RDSP on their own. If the person is a minor, their legal guardian may open it on their behalf. Anyone can contribute to the RDSP on behalf of the person with a disability, with the written permission of the individual who opened the plan. But, the person with a disability is the sole beneficiary only they can take money out of the RDSP.

For more information about the RDSP, go to: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-disability-savings-plan-rdsp.html

Why did the Committee Review the DTC and RDSP?

In early 2018, the Committee looked at whether the DTC and the RDSP need to be revised. This review was initiated following a series of concerns and complaints received last year about the administration of the DTC. The Committee extended their review to include the RDSP because both programs are closely linked. The Committee spoke to many individuals and organizations to gather information and concerns about both programs. It released its report in late June 2018, which outlined several major concerns with the DTC and the RDSP, and recommended changes to improve both programs.

The Committee identified major concerns with the administration of the DTC. The DTC is not being claimed by many potentially eligible persons with disabilities. In fact, the Committee noted that fewer than half of eligible people actually claim the tax credit. This may be due to the very nature of the DTC. Essentially, although many would qualify, low-income persons with disabilities do not receive any direct benefit from this non-refundable tax credit. The credit is only useful to those who may have to pay income tax. Other difficulties with claiming the DTC are related to the eligibility criteria. The Committee found that the DTC appears to be more focused on physical disabilities. This creates difficulty for those with neurodevelopmental disabilities, episodic disabilities, and others to qualify for the tax credit. This is evident in the arbitrary threshold used to evaluate daily activity limitations of applicants, including for mental functioning limitations. For example, daily activity limitations must be present 90% of the time or therapy must take 14 hours a week.

The Committee also identified the appeal process and the lack of appropriate data collection as problematic and in need of improvement. Finally, unnecessary barriers in the application process were identified. For example, persons with lifelong disabilities are required to reapply for the DTC periodically and persons with disabilities must pay for the completion of applications. While the Committee is pleased about the reinstatement of the Disability Advisory Committee at the CRA, the scope of its duties and proper representation of persons with disabilities still need to be revised.

Numerous issues and concerns related to the RDSP were also noted by the Committee. Because the purpose of the RDSP is to ensure financial security for persons with disabilities, more people should have access to it, especially those who are low-income and most vulnerable. The Committee noted that currently those who may lack legal capacity may be prevented from accessing the plan. Furthermore, the Committee identified the requirement to keep contributions in the RDSP for 10 years before withdrawing money without penalty as an added burden on persons with disabilities. Finally, limiting access to an RDSP to those eligible for the DTC poses an unnecessary restriction.

Recommendations to Improve the DTC and RDSP

After studying both programs and hearing from many witnesses, the Committee recommended 16 changes to improve the DTC and the RDSP. While some may take longer to implement, others are prioritised as more urgent needs for immediate improvement.

Specifically, the Committee advised the government to promptly do the following:

  • 1. Ensure that the Disability Advisory Committee better reflects the diversity of the disability community, has a broader mandate in advising the government, and is consulted before any substantive changes are made to the administration of the DTC and RDSP.
  • 2. Limit how much disability service providers can charge applicants to complete their DTC application and increase funding to non-profit disability organizations so that they can assist with these applications.
  • 3. Revise the DTC eligibility criteria to reflect less arbitrary requirements and better reflect the reality of the daily activities of persons with disabilities.
  • 4. Eliminate the need for persons with lifelong disabilities to reapply for the DTC after being approved.
  • 5. Review the appeal process with the goal of making it more transparent and simple. The process should ensure that applicants have access to all relevant information and documents to appeal a denial of their application.
  • 6. Ensure that people can keep all contributions made to their RDSP for periods where they qualify for the DTC.
  • 7. Work with provincial and territorial governments to reform legislation related to legal capacity so that all qualifying persons over the age of 18 can access the RDSP.
  • 8. Reduce the period between the end of federal grants and bond contributions and the time at which a beneficiary of an RDSP can withdraw money from their plan without penalty, from 10 years to 5 years.
  • 9. Expand eligibility for an RDSP beyond the DTC so that those eligible for provincial and territorial disability support programs can also access an RDSP.
  • 10. Improve data collection, particularly to evaluate the effectiveness of these programs and to improve access to them for vulnerable groups.

For better administration of the programs in the long term, the Committee proposed the following changes:

  • 11. Shift the responsibility for assessing eligibility of these programs from the Minister of Finance and Minister of Families, Children and Social Development to Employment and Social Development Canada.
  • 12. Create a participation model similar to the “Registered Disability Savings Group” in British Columbia, with the purpose of having a process for individuals and relevant stakeholders to inform and improve federal programs.
  • 13. Work with other levels of governments to harmonize application processes for different disability support programs.
  • 14. Change the nature of the DTC to a refundable tax credit and ensure it will be treated as exempt income from provincial and territorial social assistance programs.
  • 15. Implement a system for automatic enrolment in the RDSP once an individual is eligible for the DTC or for an equivalent disability welfare benefit from provincial or territorial level.
  • 16. Develop a guaranteed annual basic income for persons with “severe” disabilities.

What are the Next Steps?

The report was given to members of the Senate for their review on June 27, 2018. The government is not obligated to follow through with the Committee’s recommendations, but if the Senate adopts the report, it may be an indication that the government intends to make these changes to the DTC and the RDSP. At the same time, the Disability Advisory Committee is also looking into possible changes to the administration of the DTC, separate from the Committee. ARCH will continue to monitor developments regarding the DTC and RDSP.

If you wish to read the report in full, go to: https://sencanada.ca/en/info-page/parl-42-1/soci-breaking-down-barriers/

Original at http://www.archdisabilitylaw.ca/ARCH_Alert_October_3_2018