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Disability Tax Credit
The Disability Tax Credit (DTC) is a non-refundable tax credit that is intended to recognize the impact of non-itemizable disability-related costs on the ability to pay tax. For 2021, the value of the credit is $1,299.
To be eligible for the DTC, an individual must have a certificate confirming that they have a severe and prolonged impairment in physical or mental functions. 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 therapy (commonly referred to as "extensive 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.
For these purposes, the Income Tax Act recognizes the following basic activities of daily living: walking; feeding or dressing oneself; mental functions necessary for everyday life; speaking; hearing; eliminating bodily waste; and, for the purposes of the "significantly restricted" test noted above, includes seeing.
A valid DTC certificate is also a requirement for accessing certain other tax-related measures, including Registered Disability Savings Plans, the Child Disability Benefit and the disability supplement to the Canada Workers Benefit.
Mental Functions Necessary for Everyday Life
Under current rules, mental functions necessary for everyday life include:
memory;
problem-solving, goal-setting and judgement (taken together); and
adaptive functioning.
To ensure that the eligibility criteria for the DTC better articulate the range of mental functions necessary for everyday life, Budget 2021 proposes that, for the purposes of the DTC, mental functions necessary for everyday life 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
Under current rules, extensive life-sustaining therapy is therapy that:
is essential to sustain a vital function;
is required to be administered at least three times each week for a total duration averaging not less than 14 hours a week; and
cannot reasonably be expected to be of significant benefit to an individual who does not have a severe and prolonged impairment in physical or mental functions.
These requirements are intended to allow individuals to qualify for the DTC where they are undergoing therapies that have a significant impact on everyday living, comparable to the impact of being directly restricted in basic activities of daily living.
Under the current rules, time spent on the following activities may be included in determining time spent receiving therapy:
activities that require the individual to take time away from normal, everyday activities in order to receive the therapy;
where the therapy requires a regular dosage of medication that needs to be adjusted on a daily basis, activities directly involved in determining the appropriate dosage; and
in the case of a child who is unable to perform the activities related to the therapy as a result of their age, the time spent by the child's primary caregivers to perform and supervise these activities for the child.
Time spent on the following activities cannot be included in determining time spent receiving therapy: activities related to dietary or exercise restrictions or regimes (even if those restrictions or regimes are a factor in determining the daily dosage of medication), travel time, medical appointments, shopping for medication and recuperation after therapy.
These rules can result in important components of therapy being excluded from the calculation of therapy time. For example, the determination of the appropriate dosage of medicine for treating diabetes in individuals who are insulin-dependent may require precise recording of dietary intake. In a similar fashion, therapy that involves the consumption of medical food or medical formula (such as for treating certain inherited metabolic conditions) may require, as part of the treatment, the precise recording of the dietary intake of particular compounds.
To better recognize these aspects of therapy for the purposes of calculating time spent on therapy, while ensuring that everyday activities (such as normal management of a healthy diet) and discretionary activities are not taken into account for that purpose, Budget 2021 proposes to:
allow reasonable time spent determining dietary intake and/or physical exertion to be considered part of the therapy, where this information is essential to, and is undertaken for the purpose of, determining the dosage of medication that must be adjusted on a daily basis;
clarify that the exclusion of time for medical appointments does not apply to appointments to receive therapy or to determine the daily dosage of medication;
provide that the exclusion of time for recuperation after therapy does not apply to medically required recuperation; and
in the case of therapy that 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, allow reasonable time spent on activities that are directly related to the determination of the amount of the compound that can be safely consumed to be considered part of the therapy.
Budget 2021 also proposes that, where an individual is incapable of performing their therapy on their own due to the impacts of their disability, the time reasonably required by another person to assist the individual in performing and supervising the therapy would be allowed to be counted.
Budget 2021 further proposes that the requirement that therapy be administered at least three times each week be reduced to two times each week. The requirement that therapy be of a duration averaging not less than 14 hours a week would remain unchanged.
These proposed changes would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed with the Minister of National Revenue on or after Royal Assent.
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