Critical Tax Theory: Disability and the Income Tax

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The Peter A. Allard School of Law The Peter A. Allard School of Law
Allard Research Commons Allard Research Commons
Faculty Publications Allard Faculty Publications
2000
Disability and the Income Tax Disability and the Income Tax
David G. Duff
Allard School of Law at the University of British Columbia
, duff@allard.ubc.ca
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Citation Details Citation Details
David G Duff, "Disability and the Income Tax" (2000) 45:4 McGill LJ 797.
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Disability and the Income Tax
David G. Duff
*
*
Faculty of Law, University of Toronto. This paper was originally completed for the Canadian As-
sociation for Community Living. For assistance and comments in the preparation of the paper, I am
indebted to Harry Beatty of the Advocacy Resource Centre for the Handicapped (ARCH), Michael
Bach and Cam Crawford of the Roeher Institute, Connie Laruin-Bowie of the Canadian Association
for Community Living, Sheri Torjman of the Caledon Institute of Social Policy, Greg Williams of
Williams Research.com Inc., and Bill Young of the Parliamentary Research Branch. The opinions and
recommendations advanced in the paper are those of the author alone. This paper was written prior to
the 2000 Federal Budget, which introduces a number of amendments consistent with recommenda-
tions in the paper. While the basic structure and argument of the paper reflect the state of the law prior
to the 2000 Federal Budget, the paper has been updated to identify budgetary reforms where relevant.
 McGill Law Journal 2000
Revue de droit de McGill 2000
To be cited as: (2000) 45 McGill L.J. 797
Mode de référence : (2000) 45 R.D. McGill 797
The federal
Income Tax Act
contains an extensive
number of provisions addressing the taxation of fami-
lies with disabled persons. These provisions, however,
have been the subject of a series of ongoing incre-
mental adjustments, and do not reflect a comprehensive
and coherent approach to the taxation of these indi-
viduals in light of their unique financial circumstances.
This article considers the existing income tax provi-
sions regarding families with disabled persons, ana-
lyzing the relationship between disabilities and appro-
priate tax liabilities, and providing suggestions for re-
form of the current tax structure. Focussing on the
goals of tax policy narrowly defined as compared to the
broader social policy goals that may be pursued
through the tax system, the article evaluates in turn (i)
existing provisions aimed at recognizing the costs of
disability for disabled individuals and their families; (ii)
tax measures designed to facilitate participation by dis-
abled persons in the paid labour force; and (iii) current
tax rules on income support for disabled persons who
have difficulty supporting themselves. In each of these
areas, the article undertakes critical analysis of the pre-
sent tax provisions and makes proposals for their im-
provement or replacement, bearing in mind the over-
riding rationale of promoting horizontal equity between
individuals with and without disabilities and between
persons who support disabled individuals and persons
without such support obligations.
La
Loi de l’impôt sur le revenu
contient un grand
nombre de dispositions visant l’imposition de familles
avec des personnes handicapées. Cependant, ces dispo-
sitions ont été assujetties à une série de réajustements
progressifs et ne semblent pas témoigner d’une politi-
que d’imposition suffisamment complète et cohérente,
étant donné la situation financière particulière de ces
individus. Cet article passe en revue les dispositions
actuelles visant les familles avec des personnes handi-
capées, tout en analysant le rapport entre les handicaps
physiques ou mentaux et les assujettissements à l’impôt
appropriés et en suggérant des moyens de réformer la
structure actuelle du système d’imposition. En se con-
centrant sur les buts visés par la politique d’imposition,
définie de façon restrictive, comparés aux buts plus lar-
ges de politique sociale pouvant être poursuivis par
l’entremise du système d’imposition, l’article évalue, à
tour de rôle, (i) les dispositions actuelles visant à pren-
dre en compte les coûts de l’handicap pour les person-
nes handicapées et leurs familles, (ii) les mesures cher-
chant à faciliter l’intégration des personnes handica-
pées à la main d’œuvre rémunérée, et (iii) les règles
actuelles portant sur l’allocation de pensions alimentai-
res aux personnes handicapées ayant des difficultés à
subvenir à leurs propres besoins. L’auteur fait une ana-
lyse critique des dispositions actuelles dans chacun de
ces domaines, et propose soit de les améliorer soit de
les remplacer, tout en tenant compte du but primordial
de promouvoir l’équité horizontale parmi les individus
avec et sans handicap, ainsi que parmi les personnes
qui subviennent aux besoins de personnes handicapées
et celles qui n’ont pas de telles obligations.

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Introduction
I. Tax Policy and Social Policy
II. The Costs of Disability
A. Medical Expenses Tax Credit
1. Description
2. Interpretation
3. History
4. Evaluation and Recommendations
a. Name
b. Eligible Expenses
c. Threshold
d. Credit or Deduction
e. Social Policy
B. Disability Tax Credit
1. Description
2. History
3. Interpretation
4. Evaluation and Recommendations
a. Purpose
b. Eligibility
c. Dollar Amount
d. Credit or Deduction
e. Social Policy
f. Administration
C. Disability Expenses Tax Credit
1. Description
2. Evaluation and Recommendations
a. Eligibility
b. Relationship to Disability Tax Credit or Deduction
c. Refundability and Rates: Social Policy and Tax Policy
D. Personal Tax Credits
1. Description
2. History
3. Evaluation and Recommendations
a. Purpose
b. Credit or Deduction
c. Amounts
E. Child Care Expense Deduction
1. Description

2000]
D.G. D
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2. History
3. Evaluation and Recommendations
a. Purpose
b. Dollar Ceilings
c. Income-Related Limit
d. Claimants and Providers
e. Other Dependants
F. Child Tax Benefit
1. Description
2. History
3. Evaluation and Recommendations
G. Private Savings
1. Description
2. Evaluation and Recommendations
III. Labour Market Integration
A. Measures Directed at Disabled Persons
1. Description
2. History
3. Evaluation and Recommendations
a. Purposes
b. Direct Costs of Earning Income
c. Loss of Social Assistance Subsidies
B. Measures Directed at Employers
1. Description
2. Evaluation and Recommendations
a. Purpose
b. Efficacy
c. Distributive Impact
d. Administration and Transparency
e. Conclusion
IV. Income Support
A. Tax Treatment of Disability Income and Contributions
1. Description
2. Evaluation and Recommendations
a. Purposes
b. Tax Policy
c. Social Policy
B. Comprehensive Income Support for Persons with Disabilities
V. Summary and Recommendations
A. Recognizing the Costs of Disability
1. Description

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2. Purpose
3. Recommendations
a. Personal Tax Credits
b. Disability Amount
c. Medical and Disability-Related Expenses
d. Private Savings
e. Child and Disabled Adult Care Deductions
f. Canada Child Tax Benefit
B. Facilitating Labour Market Integration
1. Description
2. Purpose
3. Recommendations
a. Costs of Earning Income
b. Refundable Medical Expense Supplement
c. Tax Incentives Directed at Employers
C. Income Support for Disabled Persons
1. Description
2. Purpose and Recommendations
Conclusion

Frequently asked questions

Q1. What is the important tax instrument for the pursuit of disability-related policies?

While disability-related policies are also pursued through federal and provincial sales taxes and provincial income taxes, the federal income tax is the most important tax instrument for the pursuit of these policies. 

Q2. How is the disability tax credit facilitated?

Participation by disabled persons in the paid labour force is facilitated by exempting specified disability-related employment benefits from tax,8 by allowing individuals eligible for the disability tax credit to deduct the cost of attendant care provided to enable them to participate in the paid labour force,9 by compensating disabled individuals who participate in the paid labour force for lost subsidies for disability-related supports under provincial social assistance,10 and by permitting employers to claim an immediate deduction for prescribed disability-related modifications to buildings and prescribed disability-related equipment. 

Q3. What is the effect of the inclusion of social assistance benefits in the calculation of the recipient’s?

Although the net result of these provisions is to exempt social assistance benefits from income tax, the inclusion of these payments in computing the recipient’s net income can affect entitlement to a number of non-refundable and refundable tax credits, the amount of which depends on net income. 

Q4. What is the purpose of this paper?

This paper reviews and evaluates current income tax provisions and possible reforms relevant to families with disabled persons, with the goals of better recognizing the impact of disabilities on appropriate tax liabilities and bringing a greater degree of coherence to current income tax provisions bearing on families with disabled persons. 

Q5. What is the tax effect of the medical expense tax credit?

The medical expense tax credit, for example, is increasingly directed at disability-related expenses, while retaining a structure de-13 Although social assistance benefits are included in computing the recipient’s net income under ibid., s. 56(1)(u), the amount so included is deductible under s. 110(1)(f) in computing the recipient’s taxable income. 

Q6. What is the ITA’s definition of disability tax credit?

With respect to families with dependent children, the ITA recognizes the costs of supporting and caring for children through a credit for single parents (“wholly dependent person credit”),16 a deduction for child care expenses incurred to enable parents to participate in the paid labour force,17 and a refundable tax credit provided to low-income families with dependent children (“Canada Child Tax Benefit”). 

Q7. What is the definition of a dependent?

For the purpose of s. 118(1)(d), s. 118(6) defines a “dependant” asa person who at any time in the year is dependent on the individual for support and is(a) the child or grandchild of the individual or of the individual’s spouse; or(b) the parent, grandparent, brother, sister, uncle, aunt, niece or nephew, if resident in Canada at any time in the year, of the individual or the individual’s spouse. 

Q8. What is the definition of disability-related equipment?

S. 8801 prescribes as disability-related equipment(a) an elevator car position indicator, such as a braille panel or an audio signal, for individuals having a sight impairment;(b) a visual fire alarm indicator, a listening device for group meetings or a telephone device, for individuals having a hearing impairment; and(c) a disability-specific computer software or hardware attachment. 

Q9. How much is the maximum allowable deduction for child care expenses?

At the federal level, the maximum allowable deduction for child care expenses increased from $2,000 for each eligible child in 1987 (maximum $8,000) to $7,000 or $4,000 per child (depending on the child’s age and disability) for 1998 and subsequent taxation years.