Disability Tax Credits Change Highlights Audit-Proofing

Audit-proofing strategies must be implemented by tax professionals and their diabetic clients receiving disability tax credits in light of the CRA’s new interpretation of the rules.

CRA has changed their position on allowing diabetics to claim disability tax credits in certain cases; a national news controversy that is leaving taxpayers uncertain about claims specific to important life sustaining therapies for their loved ones.  So exactly what are the rules and why is CRA changing their interpretation in retrospect?

Criteria for claiming the DTC (Disability Tax Credit).  If you become disabled, you may be able to claim the disability amount on Line 316 of your return. You’ll need to have a medical practitioner (the government now allows nurse practitioners as authorities) complete Form T2201, Disability Tax Credit Certificate. If you do not require the full disability amount to reduce your federal taxes to zero, you may transfer the unused portion of the credit to a supporting person. In the case of spouses, that transfer is made on Schedule 2 and on Line 326 of the tax return.

Taxpayers with “a severe and prolonged impairment in mental or physical functions” may claim it. Here is what that means:

• A prolonged impairment is one that has lasted or is expected to last for a continuous period of at least 12 months.
• A severe impairment in physical or mental functions must restrict the patient all or substantially all of the time, which is another way of saying 90% of the time or more.

You will be considered markedly or in some cases significantly restricted if all or substantially all of the time you have difficulty performing one or more of the basic daily living activities listed below, even with the appropriate therapy, medication, and devices:

• speaking
• hearing
• walking
• elimination (bowel or bladder functions)
• feeding
• dressing
• mental functions necessary for everyday life

When it comes to life-sustaining therapies, the disability tax credit can be claimed if the therapy is required to support a vital function and the therapy is needed at least 3 times per week, for an average of at least 14 hours per week. This includes the daily adjusting of medication and the time spent by a primary caregiver performing and supervising activities for a disabled child.

According to the Revenue Minister, advances in technology, such as portable insulin pumps, have reduced the amount of time that diabetics require for life-sustaining therapies and this has resulted in them no longer qualifying for the credit.  What’s important is that the burden of proof is on the taxpayer – keeping a log of life sustaining treatments is required to justify claims.

The claim is lucrative. The maximum claim is $8113 per adult dependant in 2017. As a non-refundable credit, the disability amount reduces the taxpayer’s tax bill by $8113 x 15% = $1216.95 regardless of income. In addition, each province has a provincial disability amount which varies by province, and will increase this claim.

Disability Tax Credits for children who require this assistance also qualify. For those supporting a disabled minor, this amount is enhanced by an indexed supplement of $4,732 (for 2017). This amount is reduced by amounts claimed under Child Care Expenses on Line 214 and the Disability Supports Deduction on Line 215 in excess of $2,772 (for 2017).

Additional Educational Resources:  Contact your DFA-Tax Services Specialist for help in working with CRA’s audits, or consider taking this important online designation program to help others.

Evelyn Jacks is President of Knowledge Bureau and author of 52 books on personal tax preparation, tax planning and family wealth management.  Follow her on twitter @evelynjacks.

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