Tax season 2015: The disability tax credit and the push for fee limits
Efforts underway to regulate consultants and improve the application process
Mention the term "disability tax credit" to some people, and you'll get an earful.
It's not worth enough, some say, or applying for it is too complex, or the Canada Revenue Agency has unfairly turned down their claim, or the eligibility requirements are too restrictive, or their doctor says they're not eligible at all.
And then there are the fees that dozens of third-party consultants charge to help people claim the tax credit.
The CRA's own estimates show that at least 1.1 million Canadians are eligible for the credit, half of them seniors. But only 620,000 claimed it in 2012-13, saving themselves a total of almost $1 billion in federal tax.
- What's new for the 2014 tax year?
- 8 things you need to know about the family tax cut
- The ins and outs of charitable donations
So, it comes as no surprise that the whole process is now facing an overhaul, complete with new regulations, all aimed at putting more money in the hands of people who can use all the help they can get — disabled Canadians.
A federal consultation late last year heard from hundreds of disabled people and other interest groups with ideas on how to improve the tax credit. Could the application process be made easier? Are the rules around who can claim it too restrictive? Should there be a cap or limit on the fees that some clients have paid to access the money they're owed?
While we won't know for months exactly what the government is proposing to change, it's safe to say the push for change is on.
The ABC's of the DTC
The basic disability tax credit is an attempt to address, through the tax system, the added costs of living with an ongoing disability. People who qualify get tax relief that amounts to as much as $1,165 a year, with a supplemental benefit for those under 18 that's worth up to $680 a year. Provincial credits provide even more tax savings.
The requirements to be eligible for the disabled tax credit are laid out in the T-2201 DTC certificate application form. Among other things, there must be a prolonged impairment in physical or mental functions that must have lasted, or be expected to last, for a continuous period of at least 12 months.
But the DTC is unlike other tax credits in that it must be applied for before the tax return is filed. It can't be claimed until the application has been approved. Claimants must fill out Part A of Form T2201 and then ask their medical practitioner to fill out and certify Part B, which spells out the specific medical impairment. It is the eight pages in Part B that can pose problems (more about that later).
The completed form (Parts A and B) is then sent off to the CRA. The ruling comes back usually within eight weeks. CRA figures show that, in recent years, about 90 per cent of the claims have been approved.
Once approved, claimants can ask for a reassessment to claim disability tax credits going back up to 10 calendar years, depending on when they would have become eligible for the credit. Add up the federal and provincial credits, multiply by 10, and you quickly realize that there's a potential for a tax refund in the tens of thousands of dollars.
A number of private-sector consultants have cropped up who will handle all the work for fees that the CRA says can take as much as 40 per cent of the refund.
So, it is these tax credit consultants — the government calls them promoters — who are are the focus of 2014's bluntly namedDisability Tax Credit Promoters Restrictions Act.
Cheryl Gallant, the Conservative MP who introduced the legislation, told the House of Commons that it was designed to "better protect disabled Canadians from the predatory practices of some disability tax credit promoters."
The act, which sets up a regulatory framework in what has been an unregulated industry, has now been passed. All that remains is for Ottawa to determine what limits should be placed on those fees.
The CRA says it doesn't track how many DTC applications are filed by third-party consultants because there is no requirement on the form to indicate whether a third party was involved or what fee they charged. But one firm advertises that it has helped more than 115,000 clients.
The Association of Canadian Disability Benefit Professionals, which represents 12 firms that perform these types of services, says its members play by the rules and all cap their contingency fees at 30 per cent. If they don't win a refund claim, the client pays nothing other than a nominal application fee.
Linda Chornobay says after factoring in the costs of marketing, office expenses, administrative staff, independent contractors and their own accountant, the fee is justified.
"We're not making a heck of a lot of money at the end of it," Chornobay said.
She also disputes arguments that charities or non-profits can offer the same level of service for free.
"They do not work with doctors. We do," Chornobay told CBC News, saying her staff sometimes have to go back and forth with doctors and the CRA for months on complex claims.
"We are advocates," she says. "We often deal with people who get denied, and we get them approved."
Chornobay acknowledges that people don't need to hire her firm for straightforward claims. "We only do the complicated ones," she said.
Fee options the government is considering:
- Fixed maximum dollar amount.
- Base dollar amount, plus an extra amount for each tax year amended. The extra amount could be a set dollar amount or a percentage of the refund.
- A graduated amount based on the size of the refund — a fixed percentage for the first part of the refund and a reduced fixed percentage for any amount over that first part.
A Winnipeg-based tax credit consultant says it isn't just potential claimants, but also their doctors, who frequently don't understand that severe disabilities are not the only ones that qualify for the DTC. The result, according to Barry Ho of BMD Services, is that doctors will often tell patients they don't qualify when, in fact, they do. Ho says he knows of doctors who have told patients they couldn't qualify for the DTC simply because they walked into the examining room and thus were assumed to be too mobile to qualify.
Doctors, for the most part, do not understand how to complete the DTC certificate for the moderate and less-than-moderate groups.- Barry Ho, BMD Services
"The key aspect of the DTC is for anyone involved to understand that the DTC qualifying rules include the severe, moderate and less-than-moderate restriction levels," Ho said. "Doctors, for the most part, do not understand how to complete the DTC certificate for the moderate and less-than-moderate groups."
Ho, who is a former CRA auditor, says it would be more accurate to rename the disabled tax credit as "the health restriction tax credit."
He defends his fee — 22 per cent — as appropriate for the level of work involved and says tax credit consultants provide "a key and needed service."
But charities and many other support groups counter that no one should be paying thousands of dollars to access their DTC refunds, no matter how complicated their cases.
"We're totally against these companies that are charging on a commission basis of 30 per cent or 40 per cent," said Neil Pierce, national vice-president of government relations for the Multiple Sclerosis Society of Canada.
"We help people with appeals if they get an adverse decision [from the CRA]," Pierce told CBC News. "I don't see why, even supporting an appeal, you would pay such high commissions."
Where else can you go if you don't want to do the paperwork yourself?
We don't think the private sector should be benefiting from long-term, restorative payments around the DTC. But we do acknowledge that some people need help.- Laurie Beachell, Council of Canadians with Disabilities
"If people are uncomfortable with completing the process [of filing for the DTC] themselves, they could utilize the services of a qualified accountant and pay a few hundred dollars in fees," says GraemeTreeby, the founder of the Stouffville, Ont.-based Special Needs Planning Group, an organization of parents of individuals with disabilities.
Treeby, a former accountant who has written a step-by-step guide on how to claim the DTC, calls contingency fee consultants an "absolute last resort."
The CRA has simplified the DTC claim form over the years. But disability advocates say the claims process can still pose some hurdles.
"It becomes more challenging for people with disabilities to do appeals of denials," says Laurie Beachell, national co-ordinator of the Council of Canadians with Disabilities. "We don't think the private sector should be benefiting from long-term, restorative payments around the DTC. But we do acknowledge that some people need help."
Beachell points out that some charities, community living groups and non-profit organizations will help claimants navigate the claims process for no charge.
The push for reform
How else could the DTC claims process be improved?
Some advocates suggest a harmonization of eligibility criteria between income support programs, pointing out that qualifying for a Canada Pension Plan disability payment does not automatically make someone eligible for the DTC.
Others would like to see a broadening of the definition of what qualifies to reflect the episodic nature of some disabilities.
Many also suggest the disability tax credit be made refundable. Currently, the disability tax credit is non-refundable, meaning that it's worth nothing to you if you don't earn enough to owe tax. And while it may be possible to transfer all or part of the tax credit that can't be used to one's spouse, common-law partner or other supporting person, some people have no one to transfer it to. Refundable tax credits, on the other hand, are paid out regardless of whether or not the person owes tax.
The non-refundable nature of the DTC has created a situation where some low-income disabled people don't even bother to apply for the DTC, thinking it won't benefit them. That can often be a mistake, as DTC certification has become a necessary requirement for a number of other government programs, such as RDSPs (registered disability savings plans) and the child disability credit.
Everyone seems to agree that the DTC claims process could use at least some tweaking. But how much tweaking?Many don't agree that the whole process is so complex that people are forced to hire experts to navigate it. But consultants say that's often what their clients tell them.
We'll find out later what the government has in mind when its proposed regulations are announced. A large community of disabled Canadians will be watching closely.