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March 25, 2018

The more you need, the less you get

In Canada, you can be “officially” disabled by applying for and receiving a nonrefundable Disability Tax Credit (DTC).  Not a deduction or an exemption, but a credit against the amount of tax owed.  The purpose of the DTC is to provide for greater tax equity by allowing some relief for disability costs, since these are unavoidable additional expenses that other taxpayers don’t have to face.  

For 2017, Canada Revenue allowed 765,072 claims totaling $ 1,310,660,890.  

The DTC is worth around $8,113 with a supplement of $4733 available for dependent children under 18.  Sounds promising.  


But the average allowed claim was just $1713.12.  That's because you need the tax liability to offset the DTC, meaning that the more you earn, the more you benefit.

If you are in a minimum wage job - $10.70 x 2000 hrs = $21,400, your income tax will be about $2,424 and you can claim a DTC of $2,424.  You will need twice the income, $42,000, to get the full benefit.  

This is totally upside-down.  Those that need the benefit most receive least.  For those on social assistance - getting around $1,000 a month - it's entirely moot because social assistance is not taxable.  So if your income is entirely social assistance, there's no reason to file for a DTC and you get no credit. 

This is a concern not only because people are missing out on the credit itself but also because eligibility to the DTC – which is not automatic – is a gateway to other important and more valuable benefits such as the Child Disability Benefit and Registered Disability Savings Plans (RDSP).

I attended a meeting the other day where people enumerated the difficulties of being poor and disabled -  access to employment transportation and medical care chief among them.  Now I learn that this government program does exactly the opposite of what is desired.  I'm beginning to think government programs are the main problem.

I'm not a tax expert, but the obvious solution is to make this a refundable tax credit.  Sort of a guaranteed income, but only for people medically certified for a DTC.  The minimum wage earner gets a refund of $5689 ($8,113 - $2,424), the social assistance recipient gets a refund of $8,113.  The middle income earner gets a refund of up to $8,113 of withholding.

A more complicated but perhaps more complete approach (and palatable to the private sector) would be to allow syndication of the credits.  A private investor would buy the unused credit from the taxpayer.  The tax credits can only be applied in certain situations:

  • low-income housing
  • investment in rural communties
  • making historic properties accessible



The taxpayer with a certified disability gets the money, and society gets socially beneficial programs.

****************************Notes*********************

University of Calgary paper in January 2018 estimates the uptake on the DTC is around 40% - low because the program is not well known, the rules are complex and it requires a medical opinion.  765,072 is 40% of 1,912,680 - a vastly different number than 3,775,910 Canadians with disabilities reported by Statscan in 2012.  That's around 5% of the population.  In Nova Scotia it's 50,000 people.

To be eligible for the DTC, an individual must have a severe and prolonged impairment in physical or mental functions, as defined in the Income Tax Act and as certified by a medical practitioner. Eligibility is not based on a diagnosis, but rather on the effects of the impairment on the ability to perform the basic activities of daily living (as described in the Income Tax Folio S1-F1-C2, Disability Tax Credit). 

Ontario is experimenting with a guaranteed income.












1 comment:

Gus Reed said...

Lois Miler says
And also those disability-related expenses are a much higher per centage of the income of a poor person than of a person with higher income.

Making that DTC refundable was the key advocacy issue of IL Canada and Council of Canadians with Disabilities a year or so ago, but with no success to date.
Lois