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Disability Tax Credit – 2021 Federal budget proposals – now law

The 2021 Federal budget[1] announced proposed changes to the Disability Tax Credit (DTC) to broaden its scope and provide more clarity.  These proposed legislative changes are now law with an effective date of January 1, 2021[2].

The Disability Tax Credit

A taxpayer has access to the DTC when Canada Revenue Agency (CRA) formally approves the T2201 – Disability Tax Credit Certificate. This approved certificate confirms that the taxpayer has a severe and prolonged impairment in physical or mental functions. In order to qualify, the effects of the impairment must be such that, even with appropriate devices, medication and therapy, the individual is blind or is:

  • markedly restricted in their ability to perform a basic activity of daily living, or would be so restricted were it not for certain life-sustaining therapy; or
  • significantly restricted in their ability to perform more than one basic activity of daily living where the cumulative effect of those restrictions is comparable to being markedly restricted in a basic activity of daily living.

The basic activity of daily living[3] falls under six categories:

  1. mental functions,
  2. feeding,
  3. speaking,
  4. hearing,
  5. eliminating and
  6. walking.

Qualifying for the DTC provides a taxpayer with a federal and provincial non-refundable tax credit, along with access to various government programs such as the Registered Disability Savings Plan, the Child Disability Benefit and the disability supplement to the Canada Workers Benefit.

Legislative changes

The legislative amendments were designed to increase accessibility for the DTC.  The specific legislative changes were as follows:

Mental functions:

  • broadening the definition of mental functions necessary for everyday life

Life-sustaining therapy:

  • reducing the number of days therapy is required to be administered from three to two; and
  • further clarifying eligible required activities and non-eligible discretionary activities.

Broadening of mental functions

Previously, mental functions necessary for everyday life included only three categories memory;  problem solving, goal setting and judgement; and adaptive functioning.

As of January 1, 2021, the categories were expanded to include:

  • attention,
  • concentration,
  • memory,
  • judgement,
  • perception of reality,
  • problem solving,
  • goal setting,
  • regulation of behaviour and emotions,
  • verbal and non-verbal comprehension, and
  • adaptive functioning.

Life-sustaining therapy

Some taxpayers are not considered markedly restricted due to life-sustaining therapy, however these individuals may still qualify for the DTC if their life-sustaining therapy meets certain qualifying thresholds such as number of therapy days with qualifying therapy activities.

Life-sustaining therapy days

Previously, the therapy was required to be administered at least three times each week for a total duration not less than 14 hours throughout that week.

As of January 1, 2021, the therapy is only required to be administered at least two times each week for a total duration not less than 14 hours throughout that week.

Life-sustaining therapy activities

The Income Tax Act attempts to clarify the activities that qualify as life-sustaining therapy for purposes of calculating the 14-hour threshold. The legislative changes expanded the qualifying activities to include important components of therapy that were previously excluded.

As of January 1, 2021, the following activities are now considered qualifying life-sustaining therapy:

  • reasonable time spent documenting essential information for the purpose of determining the dosage of medication that must be adjusted on a daily basis. This would include dietary intake and/or physical exertion information;
  • reasonable time spent on activities that are directly related to the determination of the amount of the compound that can be safely consumed in situations where the therapy requires the daily consumption of a medical food or medical formula to limit intake of a particular compound to levels required for the proper development or functioning of the body; and
  • medically required recuperation.

The legislative change also clarifies that regular medical appointments (other than medical appointments to receive therapy or determine daily dosage of medication, medical food or medical formula) does not qualify.

Type 1 diabetes mellitus

Individuals with type 1 diabetes have historically had difficulty gaining access to the DTC.  Although originally not introduced in Bill C-19, the House of Commons Standing Committee on Finance recommended an amendment to the bill to automatically deem an individual diagnosed with type 1 diabetes mellitus to have met the criteria for life-sustaining therapy (average of 14 hours over 2 days per week). This amendment was adopted and, effective January 1, 2021, individuals with type 1 diabetes mellitus will now qualify for the DTC.

A move in the right direction

These legislative changes will hopefully open the door a little wider for those individuals suffering from severe and prolonged impairments that may not fit neatly into the DTC box.

 

 

[1] 2021 Federal budget was released on April 19, 2021

[2] Disability Tax Credit legislative changes were included sections 6 and 7 of Part I of Bill C-19 which received Royal Assent on June 23, 2022.

[3] Basic activity of daily living is defined in paragraph (c) of subsection 118.4(1) of the Income Tax Act

About John Oakey
National Tax Director for Baker Tilly Canada. John has extensive experience with Canadian corporate and personal income taxes with specialization in the areas of corporate reorganizations, estate planning, succession planning and tax compliance. He also has significant experience dealing with GST/HST issues and U.S. citizen cross-border tax reporting issues.

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