Chapter 1: The Context

The mandate of the Committee was to explore the role, effectiveness and fairness of disability-related tax measures. While this mandate was very specific, we knew that it would be necessary to place our work within the context of broader debates around disability that have taken place over the past few decades across the country and, indeed, throughout the world.

These debates have focused upon the recognition of persons with disabilities as citizens of equal worth and entitlement. Ensuring their fullest participation enables them to make a positive social and economic contribution — a benefit both to the individuals and to society.

The Committee was also influenced by the extensive legacy of reports on disability that have been written since 1981, the International Year of Disabled Persons. This year is often cited as a landmark or turning point at which time governments around the world began to pay attention to disability issues. We tried to ensure that our work was consistent with the evolution over a near quarter-century of the knowledge and attitudes in this area.

Citizenship is often understood as an ability to participate and be included in all aspects of society. Canadian governments have recognized repeatedly the importance of participation and inclusion for persons with disabilities, beginning in the early 1990s, when the federal, provincial and territorial governments issued Mainstream 1992: Pathway to Integration. This work was intended to ensure that persons with disabilities have access to all public programs and to the same goods and services as other Canadians.

Inclusion was identified as an overarching national goal by the federal-provincial-territorial document In Unison: A Canadian Approach to Disability Issues, which sought ways to guarantee that persons with disabilities could participate in virtually all aspects of community life. Our proposals are consistent with this vision.

The Committee’s recommendations seek to make the tax system fairer for persons with disabilities, promote greater equity among various sectors of the disability community and ensure that the tax system recognizes that Canadians with disabilities face substantive disadvantage. But while our recommendations for improved tax fairness are significant, we acknowledge that they are only small steps to enhance access to disability supports and to educational and employment opportunities. Nor do they address in any substantive way the poverty experienced by many Canadians with disabilities.

The federal government again affirmed its commitment to full participation in its 2002 report, Advancing the Inclusion of Persons with Disabilities. One way to promote inclusion is through accommodation, which basically means finding ways to make certain that persons with disabilities can maximize their participation in any given program, event, opportunity or environment. The intervention may be as small as modifying a door handle or as substantial as redesigning a work process.

Accommodation can be achieved through the provision of a disability support, such as technical aid, special equipment or personal assistance, which enables an individual to carry out an activity of daily living to the fullest of his or her capacity. Families, caregivers and employers play important roles in providing this assistance.

Modifications to the physical environment to remove barriers, such as installation of ramps or rearrangement of internal spaces and furniture, are other significant measures. Barrier-free design generally is considered the starting point for accommodation. This type of design is helpful not only for persons with disabilities. It makes the world more manageable for everyone. Curb cuts, for example, are easier for young children, the elderly, parents with baby strollers and persons with mobility impairments. Clear language and large print improve clarity for all, including persons with learning, visual or intellectual disabilities.

But accommodation involves more than physical adaptation. Individual needs often can be accommodated through adjustment of a rule, requirement or procedure. A person with a severe learning disability, for example, may need additional time to complete a school assignment or exam, or may even require a modified course load or curriculum. Someone with chronic fatigue syndrome or multiple sclerosis may be able to continue working with a flexible schedule.

Regardless of the form of accommodation, it effectively seeks to encourage a sharing of the additional costs of disability. The accommodation of disability-related needs within any setting — child care centres, schools, post-secondary educational institutions and workplaces — often reduces the amount that individuals themselves must pay for additional assistance or customization. The costs of accommodation effectively are built into the space, facility or program.

It has been almost 10 years since the Federal Task Force on Disability Issues noted the importance of accommodation:

The federal government should concern itself with ways to minimize or eliminate additional disadvantages of costs and lack of mobility that Canadian citizens face because they have disabilities.

This means that every government program should, as a matter of principle, incorporate the individual and particular needs of persons with disabilities in the very core of its design. A good example of what we mean is the Canada Student Loans Program. Certain criteria such as the number of courses a student can take, or the length of time to complete a program, are flexible so that all eligible students with disabilities can qualify for a loan.

At the same time, we recognize that the additional costs of disadvantages that result from disabilities cannot always be accommodated in each and every ‘mainstream’ program. Where this is the case, a complementary measure, designed to mesh with the generic program can be put in place to ensure that no one is denied the opportunity to participate just because of disability.¹

Accommodation is important because it helps reduce individual financial burden by sharing the costs of disability. When persons with disabilities are able to participate fully in education, training and employment, they become contributing members of society. Many pay income tax and ‘return’ the accommodation investments made on their behalf. When persons with disabilities are able to participate in all aspects of society, they can enjoy the full rights and responsibilities of citizenship.

Our examination of the various disability tax measures ultimately led to debates about the role of these tax provisions relative to the overarching national goals of citizenship and inclusion. Our immediate concerns focused upon the principle of equity and how the tax measures we were asked to consider could be made fairer and more equitable. As we explored the role of tax provisions relative to the broader goals of citizenship and inclusion, and the immediate goals of equity and fairness, we found ourselves grappling with a number of difficult questions.

First, how should disability be defined? This question was particularly relevant to our discussions of the disability tax credit. But it is important for other tax measures as well as for programs and services. In answering this question, we turned to the social model, which takes into account how well society accommodates impairment in function.

Second, in acknowledging that persons with disabilities incur additional costs, what is the role of the tax system with respect to these costs? Our recommendations represent our attempt to answer this question.

Finally, is the tax system the most appropriate delivery mechanism for recognizing disability-related costs? We explore this last question in the final chapter, Future Directions.

Any measure that provides assistance to persons with disabilities — whether a program, service, income support or tax relief — quickly runs into a common problem. The question arises as to how to define disability in order to determine eligibility.

At the current time, a wide range of definitions is used to determine eligibility for various programs and tax measures. The issues arising from multiple eligibility criteria were documented in a recent federal report entitled Defining Disability: A Complex Issue.²

The term ‘disability’ captures diverse conditions and causal factors. There are many different types of disability related to mobility, hearing, seeing, mental function, learning and development. And there are varying degrees of severity and impairment within and across types of disability. While tax measures and other disability supports require that lines be drawn for eligibility purposes, all such lines are arbitrary to some extent. Inevitably, the difference between those who qualify and those who do not is often small.

Data from the 2001 Participation and Activity Limitation Survey conducted by Statistics Canada indicate that an estimated 3.6 million Canadians — or 12 percent of the population — experienced some limitations in their everyday activities because of physical, psychological or health conditions.³ Data from the 2000—01 Canadian Community Health Survey show that the rate of disability is significantly higher among Aboriginal Canadians, 31 percent of whom reported having a disability.⁴ The limits of the tax system in addressing the needs of Aboriginal Canadians are discussed in Chapter 5.

Not surprisingly, the rate of disability rises with age. About 3 percent of children up to age 14 have a disability compared with 53 percent of seniors age 75 and over.

Looking only at the adult population, the Participation and Activity Limitation Survey reported that an estimated 3.4 million adult Canadians — or 15 percent of the adult population — had some form of disability in 2001. Of this total, the survey revealed that about 1.2 million persons had a mild degree of activity limitation and 860,000 had a moderate degree of activity limitation.⁵ Approximately 920,000 and 480,000 Canadians are reported to have severe and very severe levels, respectively, of activity limitation.⁶

While these statistics provide a general overview of the incidence of disability in Canada, there is a great deal of variation within the population of persons with disabilities. Some people are born with disabling conditions such as spina bifida. Others acquire a disability, such as multiple sclerosis, in the course of their lifetime. Still others may become disabled as a result of an accident, as in the case of a worker who loses a limb at a factory or a person who becomes paralyzed because of a motor vehicle or sports-related accident. Many individuals experience impairment in function due to the effects of aging; vascular dementia is just one example.

The Committee also learned in the course of our work that the conceptualization of disability has been changing over time. Disability used to be understood in fairly narrow terms. The mere presence of certain conditions used to mean that a person was disabled. This approach, referred to as the ‘medical model,’ typically views disability as a health problem or personal abnormality.

The influence of the medical model became especially apparent in our discussions of the disability tax credit, which in its application to date has had serious difficulties with the recognition of mental disabilities. Because the effects are often not immediately obvious or easily measurable, persons with mental disabilities frequently are not identified as having a disability even though they may be more restricted in function than some persons with physical disabilities.

We learned that the emerging social model, by contrast, views disability largely as a problem of how well (or not) society accommodates impairment in function. When environments are adapted to individual need, the effects of a disability can be reduced in severity.

The proposition that disability should be understood as the effects of impairment within a given context is consistent with work under way throughout the world.

In 2001, for example, the World Health Organization released the latest version of the International Classification of Functioning, Disability and Health, in which disability was seen to arise from the interaction between impairments and externally imposed limitations on activity. The federal government has also acknowledged the evolution of thinking in this area:

For many decades, disability was seen as a set of characteristics of the individual — a person was disabled or had a disability [italics in original]. As such, governments’ and society’s interventions involved protecting the individual and the community, or treating and fixing the impairment. But in the past two decades, as the disability rights movement has emerged, the concept of disability has shifted from individual impairment to a more social phenomenon. In this social view, persons with disabilities are seen as being restricted in performing daily activities because of a complex set of interrelating factors, some pertaining to the person and some pertaining to the person’s immediate environment and social/political arrangements.⁷

The key feature of a social model of disability is the recognition that a disability does not lie solely in the individual, in his or her genetic differences, disease, long-term health condition, or impairment in physical, sensory or mental functioning. Disability is also determined by the limitations in carrying out activities of daily living, and in participating in the social, economic, political and cultural life of the community. These limitations can derive from the condition or impairment itself, in the context of other individual conditions and factors, from social attitudes toward such conditions and/or from ways of designing and organizing social, economic and built environments.⁸ Often the limitation that arises from a particular condition can be significantly ameliorated if the social stereotypes, need for supports and environmental barriers are adequately addressed. There are many examples of how advances in technology and treatment have had a dramatic impact upon the ability to carry out daily activities.

Advancing the inclusion of people with disabilities requires action at various levels, including provision of needed supports to individuals; ensuring families and caregivers have the supports they need to play their roles; enabling communities to remove the physical and architectural barriers to access; ensuring that community services, schools and workplaces provide full accommodation; and addressing long-standing negative stereotypes about people with disabilities. Our discussions have been guided by this understanding of disability, and by our effort to explore ways the tax system might address the disabling effects of individuals’ conditions and the environments in which they live, learn and work.

While disabilities vary widely in their impact, they often give rise to a common problem. Persons with disabilities are likely to incur additional costs and to require assistance in order to participate actively in and contribute to society.

The Participation and Activity Limitation Survey found that in 2001 an estimated 1.6 million persons age 15 and over with disabilities (out of a total 3.4 million persons) required assistive aids and devices. While most of these individuals said that they were able to obtain all the needed aids and devices, a sizeable minority (approximately 40 percent) reported that they could not.⁹ Among those with unmet needs for assistive aids, the high cost of the equipment was cited as the main reason, particularly for persons with severe or very severe disabilities.

Persons with disabilities also face further costs in terms of lost opportunities. Many experience a diminished capacity to earn income — they can work only a few hours or days a week, if at all. Many caregivers forego paid employment to stay home and care for their child or other relative with a disability. As a result, persons with disabilities and caregivers face higher rates of unemployment, which often leads to lower incomes and higher rates of poverty.

Data from the Participation and Activity Limitation Survey indicated that about 40 percent of children with mild and moderate disabilities have family members whose employment is affected by the child’s disability. The proportion rises to 73 percent among children whose disabilities are considered severe.¹⁰ This foregone employment has an impact not only on current levels of income but also on the value of future pensions. Because mothers are usually the primary caregivers of children, it is their employment that is most often affected by their child’s condition.

The federal tax system has a number of measures that recognize the special circumstances of persons with disabilities. Within the tax system, the personal income tax system is the most direct way to reach Canadians with disabilities and has the most significant measures. Our focus is upon personal income tax measures, though we also touch briefly on the corporate tax system. A summary of the various personal income tax measures for persons with disabilities and for caregivers is provided in Appendix 4.

The personal income tax system has two key functions. The first and primary role is to raise revenue for the government. The second and more recent function is to act as a delivery vehicle for social programs — most notably income-tested benefits such as the Canada Child Tax Benefit.

As a revenue-raising mechanism, the personal income tax system must, and must be seen to, treat Canadians fairly. While there will always be debate about what makes a fair tax system, there is a generally accepted principle that income taxes should be levied according to ability to pay. The concept of tax fairness has two components.

The first is vertical equity, which suggests that those with higher incomes should pay more tax. In the Canadian tax system, vertical equity is achieved primarily through the progressive income tax rate structure.

The second dimension of fairness is horizontal equity, under which individuals with similar incomes in similar circumstances should pay similar amounts of tax. In practice, this principle involves providing tax credits or deductions to help recognize non-discretionary costs that reduce individuals’ ability to pay tax relative to other taxpayers with the same total income. This recognition is not meant to subsidize or offset these costs, but rather to achieve equity and greater fairness in the allocation of the tax burden.

In the case of persons with disabilities, the principal measures that recognize additional costs are the disability tax credit, the medical expense tax credit and the disability supports deduction proposed in the 2004 federal budget. There are also cost recognition measures for family caregivers, notably the caregiver credit and the infirm dependant credit. Several other tax provisions available to all Canadians have special rules that take into account the circumstances of persons with disabilities.

There are various tax measures that recognize the impact of the costs of accommodation upon the ability to pay tax. The disability supports deduction, introduced in response to one of the Committee’s recommendations, ensures that the cost of disability supports purchased for purposes of employment or education are fully deductible. The corporate tax system provides full deductibility of certain capital expenses incurred by businesses to accommodate the special needs of persons with disabilities, whether as customers or as employees.

As noted, the income tax system now delivers some income-tested benefits. For persons with disabilities and their families, there are two measures of interest. The first is the refundable medical expense supplement, which refunds to low-income workers a portion of the expenses recognized under the medical expense tax credit, and the disability supports deduction. The second is the Child Disability Benefit, which is delivered as a supplement to the Canada Child Tax Benefit to families caring for a child eligible for the disability tax credit.

We explore several of these measures in some detail, most notably the disability tax credit. We also discuss the taxability of disability-related income and support programs, and examine tax-assisted savings vehicles for families with children with severe disabilities.

The tax system generally recognizes out-of-pocket disability-related costs that can be identified and supported for tax purposes. These are often referred to as ‘itemizable costs.’ They include personal help with everyday living, technical aids and devices, and modifications to homes, vehicles and workplaces. These costs may be incurred by the person with a disability or by a supporting person. The medical expense tax credit and the disability supports deduction recognize many of these itemizable disability-related expenses.

At the same time, there are some disability-related expenses that may be more difficult to determine with precision. These non-itemizable costs of disability are not easily measured or quantified.

For example, some individuals may need to take a taxi to a locale that normally would be considered within walking distance. Others must purchase prepared food because they are unable to cook on their own. Many pay additional costs for specially altered clothing or may have to replace garments more frequently due to wear and tear from the use of assistive equipment or prosthetic appliances. Caregivers may also face higher costs — itemizable and non-itemizable — in respect of the support they provide for their children with disabilities.

Because non-itemizable costs cannot be readily measured, the tax system recognizes them through a flat amount that can be claimed by individuals who meet certain criteria. The disability tax credit is a prime example of this kind of measure.

The purpose of tax credits and deductions is to help determine what portion of income, if any, should be remitted to the government, rather than to compensate for lack of income or to reimburse individuals for their out-of-pocket costs. While our mandate called for us to examine disability-related tax measures, we felt that it was important to look at this particular delivery mechanism within the context of the total system of support for persons with disabilities.

Given both the federal nature of Canada’s government and the vast differences in types and severity of disabilities, it is not surprising that this system is extraordinarily complex. Income assistance and disability supports are delivered by a wide variety of measures and programs. Families of persons with disabilities also provide substantial caregiving and other supports.

Employed-sponsored disability insurance is a major component of income support for many persons, but is not available to all persons with disabilities. Provinces and territories run the most important publicly provided disability-related programs.

These typically involve direct support to individuals through income assistance, provision of disability equipment and aids, and services at home.

Support sometimes is delivered through individual funding. Individuals receive a designated amount, according to their specific needs, to enable the purchase of required goods and services. The Canada Study Grant for Students with Permanent Disabilities, for example, helps offset the cost of supports required to participate in post-secondary education.

Programs vary by jurisdiction and by disability. Taken together, they provide a substantial amount of assistance but they are far from seamless or universally effective. Measures for persons with disabilities consist of a patchwork of programs and tax measures that are not fully integrated. These measures make available some appreciable level of support for some but less than adequate assistance for others. They comprise a bewildering maze that persons with disabilities face when seeking support.

In the final chapter of this report, we make some general comments about the overall system. For now, as we review the various tax measures that are the direct subject of our mandate, it is important to recognize that these represent only a modest part of the total picture. It is to these tax measures that we now turn.

¹ Federal Task Force on Disability Issues, Equal Citizenship for Canadians with Disabilities: The will to act, 1996, p. 12.

² Government of Canada, Defining Disability: A Complex Issue, 2003.

³ Human Resources Development Canada, Disability in Canada: A 2001 Profile, 2003, pp. 2, 46, 51.

⁴ The Canadian Community Health Survey data do not include information on Aboriginal people living on First Nations reserves and are not directly comparable to the data from the Participation and Activity Limitation Survey. For more information, see Government of Canada, Advancing the Inclusion of Persons with Disabilities, 2002, pp. 6—7.

⁵ Human Resources Development Canada, Disability in Canada: A 2001 Profile, 2003, p. 53.

⁶ The Statistics Canada survey is based on self-evaluation, and its results are not necessarily consistent with other measures that derive from independent health and activity evaluations.

⁷ Government of Canada, Advancing the Inclusion of Persons with Disabilities, 2002, pp. 10—11.

⁸ Roeher Institute, Moving In Unison into Action: Towards a Policy Strategy for Improving Access to Disability Supports, 2002.

⁹ Human Resources Development Canada, Disability in Canada: A 2001 Profile, 2003, p. 60.

¹⁰ Statistics Canada, Children with disabilities and their families, Catalogue no. 89-585-XIE, 2003, p. 9.