Technical Advisory Committee on Tax Measures for Persons with Disabilities
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Welcoming the Contributions of Citizens with Disabilities
“If I were to summarize what
you (PLAN) are working on, it is to enable individuals to exercise their citizenship.”
- His Excellency, John Ralston Saul
Honorary Patron, PLAN
Submitted to: Technical Advisory
Committee on Tax Measures for Persons with Disabilities
Sherri Torjman, Robert Brown, Co-chairs
Date: August 29, 2003
Submitted by: Planned Lifetime Advocacy Network
Ted Kuntz, President
Suite 260-3665 Kingsway,
Vancouver, BC V5R 5W2
Telephone: (604) 439-9566
Facsimile: (604) 439-7001
Website: www.plan.ca
Contacts: Al Etmanski, Executive
Director
Jack Styan, Director of External Relations
Summary of Recommendations
Immediate
• Permit expenses that result in companionships, friendships or other
supportive and caring relationships to be claimed under the Medical Expense
Tax Credit.
• Allow the tax deferred rollover of RRSP’s/RRIF’s to discretionary
trusts, the beneficiary of which is a person with a disability, without the
purchase of an annuity.
• Create an exemption for disability related distributions from trusts
for persons with disabilities receiving Guaranteed Income Supplement.
• Re-evaluate eligibility for the DTC to ensure that persons with life-long
developmental disabilities qualify.
Medium Term
• Develop a Registered Disability Savings Plan
• Improve the RRSP/RRIF rollover provisions
• Create a Disability Expense Tax Deduction
• Improve the Disability Tax Credit
• Synchronize Old Age Security with provincial disability pensions
• Support the Creation of a Provincial Disability Tax Deduction
Introduction
“In a sense what has happened is that we've developed our sense of community.
We've become much more aware of who we are, and what it is like to be a citizen
in a community. What is wonderful about PLAN, this organization, is that it
is focussed on community and on the long term. Community is, after all, about
the long term. It's about today, it's about yesterday, but it's about the
long term, otherwise it's not community.” – John Ralston Saul
Canadian families are resilient, self sufficient and capable. We have never
relied on or expected government to provide exclusive support for our family
members with disabilities. Beyond the basic necessities of life, such as providing
direct care and support with the tasks of daily living, we love, support,
inspire and nourish our family members in body and soul. This is what caring
parents do. There are, however, additional pressures and costs associated
with our sons’ and daughters’ disabilities.
Like all parents, we too have dreams. We envision our family members living
a good life, being safe, contributing to their community, having deep and
enduring friendships, and enjoying committed loving relationships. We want
what our sons and daughters dream and desire – that they have the opportunity
to share and be recognized for their gifts. In other words, that they be full
citizens of Canada. Like other parents, we will do anything to enable our
children to realize their dreams. Our limits are often financial. Most of
us are not wealthy enough to provide the best for our children for their lifetime.
‘Citizen’ is one of the most important roles each of us plays
in society. The ‘caring citizen’ is the glue that holds our society
together. Citizenship involves three components: rights, responsibilities
and access.
• Rights of belonging, of access to justice, to due process, of mutual
recognition and approval of our distinctiveness, uniqueness and differences
both as individuals and groups.
• Responsibilities to respect and care for each other; to commit to
the well being of the community, to contribute to the health and vitality
of our communities, to engage in creating a vital society.
• Access to the forums, institutions, associations and public spaces
where citizens meet, discuss, share, work, contribute, play and socialize.
Thus our common vision is clear: to secure a good life for persons with disabilities;
to secure a caring society. A good life is universal. It includes: caring
relationships with family and friends; having a place to call home; being
able to make choices and pursue our passions; having adequate resources to
live with dignity; and becoming contributing citizens.
Progress has been made in recent years, and many persons with disabilities
are living a good life. However, there are many challenges and much more can
be done. Persons with disabilities still live, disproportionately, in poverty
and isolation.
Achieving our vision is a responsibility shared by all citizens and sectors
of our society: persons with disabilities, family members and other citizens,
business and government. We invite you to consider the following recommendations
to enhance the capacity of Canadian families who have always taken responsibility
for caring for their family members with disabilities. Indeed, approximately
75 percent of persons with developmental disabilities are cared for by their
families without government support.
The Challenges
An Outdated Paradigm
The way in which disability is understood in our society leads to the conditions
in which persons with disabilities live.
“Disability is not measles. It is not a medical condition that needs
to be eliminated from the population.” The paradigm that situated the
disability inside the person and therefore resulted in the need to “fix”
the person has formed the basis for statutes, policies and programs for persons
with disabilities. The result is a system that propagates this way of thinking.
Aspirations for a good life and citizenship require the adoption of a new
way of thinking and subsequently, the transformation of the existing system.
The emerging paradigm is one in which all citizens are expected to contribute
their gifts. Contribution is the cornerstone for a good life and citizenship.
The state can guarantee the rights of citizenship but full citizenship is
only realized through our contributions. The reason for this is simple. We
gain full citizenship by contributing to the common good.
The gifts of persons with disabilities have too long gone unrecognized. They
have neither been encouraged nor expected to contribute. This is a terrible
waste.
Isolation and loneliness stand as major barriers to becoming full contributing
citizens and the realization of a good life. They are also barriers to the
development of a new paradigm of disability in our society.
An Emerging Challenge
“It's about stability in the lives of people who have disabilities and
need that stability, just the way everybody else needs stability.” –
John Ralston Saul
When we think about securing a good life for our family members with a disability,
we must also think beyond our lifetime to the lifetime of our family member.
In fact, one of our constant worries is “What will happen to my son
or daughter with a disability after I die?”
For the first time in history, our sons and daughters can be expected to outlive
us. Thanks to medical advances, higher social expectations and community living,
persons with disabilities will live long lives. In fact, some of our sons
and daughters are about to become senior citizens.
This demographic fact highlights a new challenge for all of us – families,
caregivers and our federal and provincial governments. We will need to look
at new tools and instruments to permit families to secure a good life; to
acknowledge family contributions; and to harmonize disability and seniors’
policy.
Use of the Tax System
The tax system can be an efficient mechanism for accomplishing social policy
goals. It is used to compensate families for the costs of child care. It is
used to alleviate the impact of poverty on children. The federal disability
tax credit recognizes some of the extraordinary costs of supporting a family
member with a disability.
Progressive tax policy does not require the administration of a separate delivery
system. It enables persons to find personalized solutions, to be innovative
and to best utilize their, their families, and their communities’ problem
solving capacities. It also enhances their capacity to make decisions in the
best interest of their family member with a disability and to contribute in
their communities rather than remain passive recipients of charity.
Our Goals
Hence, we seek a policy framework which:
1. Is consistent with the new paradigm of citizenship and contribution;
2. Creates tools and instruments to help families plan for the time when they
can not take care and provide financial assistance;
3. Acknowledges the existing contributions of persons with disabilities and
their families; and
4. Provides incentives for persons with disabilities, families and various
levels of government to contribute and share the responsibility for securing
a good life.
Short Term Recommendations
No One be Left Alone
“I know that your dream – I think it shouldn't be your dream,
I think it should be your motto – is that no one be left alone. And
that sounds like a very grand dream in a society where a lot of people are
alone.” – John Ralston Saul
Issue
Isolation and loneliness are major handicaps and are often the most significant
barriers to achieving a good life. Relationships are a key component to securing
a good life. They are necessary to meet our needs for belonging and meaning.
They are critical for participation and for achieving full citizenship. And,
relationships are the single most important element in assuring the safety
and security of vulnerable persons.
We need a framework of statutes, policies and programs that are designed to
facilitate and nurture belonging – relationships and community connections.
Solution
Permit expenses that result in companionships, friendships or other supportive
and caring relationships to be claimed under the Medical Expense Tax Credit.
Rollover of RRSPs and RRIFs to trusts
Issue
Discretionary trusts are key tools for families who are trying to secure a
good life for a family member with a disability. There are two main reasons
for their importance.
First, discretionary trusts enable us to leave a share of our estate to our
family member without jeopardizing their provincial disability benefits. Provincial
disability income systems serve persons within the “welfare” framework.
The result is that persons with disabilities qualify for a disability pension
and the associated benefits only in when they have no financial assets and
only when they have little or no income. While families want to help their
disabled sons and daughters, few are in a position to replace provincial disability
income on an ongoing basis. The discretionary trust is the most important
tool for planning the long term safety and well being of our family members
with disabilities. And second, trusts can provide a mechanism to manage or
co-manage an asset in the best interests of the person and thus protect funds
and assets against exploitation and misuse.
The recent requirement to purchase an annuity to pass funds from an RRSP or
RRIF to a trust on a tax deferred basis, while a positive step, requires the
purchase of an annuity. When interest rates are low, an annuity might not
be the best investment tool with which to maximize income. Furthermore, it
reduces flexibility in the use of the asset because payments are restricted
to monthly amounts. For example, it would preclude the asset being used as
a down payment on the purchase of a house for the son or daughter with a disability.
Solution
Allow the tax deferred rollover of RRSP’s/RRIF’s to discretionary
trusts, the beneficiary of which is a person with a disability, without the
purchase of an annuity.
Create an Guaranteed Income Supplement Exemption for Disability Related
Expenditures from Trusts
Issue
In some provinces, such as British Columbia, distributions from trusts that
are used to purchase certain disability related goods and services are not
considered income by the disability benefits system. Thus expenditures on
“disability related costs” can be made without diminishing the
income of our family member with a disability. This permits a significant
contribution towards securing a good life and protecting the person’s
safety and thus acts as an incentive for parents to assist their sons and
daughters with disabilities.
A similar exemption, however, does not exist when a person turns 65 and then
moves to Old Age Security and the Guaranteed Income Supplement. When receiving
Guaranteed Income Supplement, distributions from a trust are treated as income
and effectively taxed at 50%. Thus when our family members with disabilities
turn 65, they lose a mechanism with which to secure a good life.
Solution
Create an exemption for disability related distributions from trusts for persons
with disabilities receiving Guaranteed Income Supplement.
Re-evaluate eligibility
for the Disability Tax Credit (DTC)
Issue
Many of our family members with life-long developmental disabilities have
been denied the disability tax credit. While they may not have physical impairment
to meet the current criteria for the DTC, their intellectual limitations mean
that they require ongoing care and support. Their families remain involved
throughout their lives by providing financial assistance and watching out
for their safety and well-being.
Solution
Receipt of the DTC would assist this group of persons in achieving a good
life and, if transferred, would compensate families for some of the extraordinary
disability-related expenditures and would recognize families’ life-long
commitment to their sons and daughters with disabilities.
Re-evaluate eligibility for the DTC to ensure that persons with life-long
developmental disabilities qualify.
Medium Term
Registered Disability Savings Plan
Issue
Parents, grandparents and siblings have always demonstrated their willingness
to contribute financially to their relative with a disability. These contributions
are largely unacknowledged in the tax system – in fact there are disincentives.
Often the funds or assets passed on to the individual are clawed back by provincial
policy.
The lack of a flexible, tax-deferred savings vehicle that is available to
families who want to help their relative with a disability is a major impediment.
There is no incentive for families to plan for the future. Neither is there
any ability to assist their family members with disabilities to purchase housing
and other social, educational, work or rehabilitation supports.
Thus any goal of reducing dependence on publicly funded programs by encouraging
self-reliance and promoting the maintenance of quality of life is effectively
discouraged for many Canadian’s with disabilities.
Solution
Establish a new tax-deferred savings vehicle called a Registered Disability
Savings Plan. This would be a commitment to the full participation of citizens
with disabilities in Canadian life. It would also encourage the contributions
of family members and encourage self-reliance and future planning for citizens
with disabilities. These contributions will not only increase the likelihood
that many Canadians with disabilities will achieve a good life; they will
also reduce dependence on government-funded social services.
A Registered Disability Savings Plan would have the following characteristics:
• Deferred tax on contributions during the lifetime of the individual
with a disability;
• Permits ownership of the Plan by a discretionary trust to recognize
varying levels of capacity and the family’s desire to protect its assets;
• Expenditures to enhance participation and citizenship would not be
considered income and would be exempt from taxation (for example: a home or
modifications to a home, devices or medical aids, caregiver or other services
related to the persons disability, education or training);
• Contributions could be made by the individual with a disability, a
parent or a member of the extended family; and
• Contributions could be in the form of money or other financial assets.
Transfer of Funds in RRSP and RRIF Accounts to Relatives with Disabilities
Issue
The Federal Government recently increased the ability of parents and grandparents
to provide for the future well being of their relative with a disability by
extending the tax deferred, rollover provisions of RRSPs and RRIFs to adult
sons, daughters and grandchildren. The increase in the income threshold and
the ability to utilize trusts means that families have an additional planning
tool.
There remain, however, several obstacles to the use of this provision as an
effective planning tool for families:
• The ability to use a trust as a planning vehicle is limited by the
requirement to purchase an annuity before RRSP or RRIF funds can move into
it on a tax deferred basis. Thus the flexibility and utility of this option
is reduced by the requirement to purchase an annuity.
• Utilization of provincial disability benefits further restricts families
from using the RRSP rollover provision to help their relative with a disability.
In most provinces, the direct transfer of assets to an adult with a disability
makes the person ineligible for disability benefits. Thus an attempt to assist
a relative with a disability is nullified by the province.
• The definition of dependent creates a low-income ceiling. The person
with a disability must have an annual income of less than $13,814. This restriction
renders the policy of allowing the transfer of such funds meaningless to those
Canadians with disabilities who have a very moderate income.
• This mechanism is only available to parents or grandparents. Thus
any interest that siblings, aunts and uncles or cousins might have to assist
a relative with a disability is thwarted.
• And finally, this mechanism is only available on the death of a parent
or grandparent. Thus it cannot be used to assist a relative with a disability
during the parents’ lifetime.
Solution
Further increase the utility of the RRSP/RRIF rollover provision by removing
restrictions on its use. Greater flexibility will encourage contributions,
benefit Canadian’s with disabilities and reduce dependency on social
services.
The following changes will increase the flexibility of this mechanism:
• Permit families to transfer funds held in RRSPs and RRIFs on a tax
deferred basis directly to discretionary trusts established for the benefit
of their family members with disabilities;
• Link the cut-off for determination of financially dependent to the
Low Income Cut-off and make dependence solely based on income;
• Broaden eligibility to permit extended family and siblings to assist
a family member with a disability; and
• Permit family members to utilize this mechanism prior to their death.
Disability Expense Tax Deduction
Issue
Families bear a wide range of direct costs of caring for dependents that have
a disability. Numerous income tax provisions recognize and provide some relief
for these costs. There are, however, significant issues. Most significantly,
the tax relief is much less than the actual costs incurred by families.
The Medical Expenses Tax Credit, which provides recognition for some expenditures,
has four major problems:
• It is a credit against tax and as a result only a fraction of costs
are reimbursed;
• It has a high deductible that is unfair when applied to expenses that
recur year after year;
• Some legitimate disability related expenses, such as expenses to facilitate
and enhance social networks, are not recognized; and
• Families who have relatives with disabilities often overlook the opportunity
to claim benefits because of the name.
Solution:
Re-create a Disability Expense Tax Deduction to recognize the real costs incurred
by Canadians with disabilities and their families for disability related expenses.
This will recognize and promote family contributions in a much more meaningful
manner.
The Disability Expense Tax Deduction will:
• Permit the deduction of the full costs of disability-related expenses;
• Not have a minimum deductible;
• Recognize a wider range of disability related expenses incurred, including
planning, social network development and maintenance, and the procurement
of information;
• Be transferable to family members who incur eligible expenses; and
• Retain a modified Disability Tax Credit as outlined below.
Disability Tax Credit
Rationale
The Disability Tax Credit was designed to provide “more complete relief”
than the medical expense deduction, in particular for expenses that are difficult
to quantify, and to compensate for unpaid time expended by family members.
These items are most appropriately recognized through a credit of a fixed
amount.
It is, however, inadequate for several reasons, including:
• It is not refundable and therefore is of little or no value to individuals
with disabilities or families with low income to whom it might be transferred;
• Its fixed dollar value, just over $1,000 when provincial taxes are
taken into account is inadequate; and
• “Disability” is narrowly defined, and eligibility excludes
many persons with disabilities, especially persons with mental handicaps.
Solution
Modify the Disability Tax Credit to better fulfill its purpose of recognizing
disability-related costs that are indirect and difficult to itemize. The new
Disability Tax Credit will:
• Be refundable;
• Be increased to recognize the real value of these expenses; and
• Have broadened eligibility requirements to ensure that persons with
mental handicaps are included.
Old Age Security System
Issue
At age 65, individuals with disabilities, like everyone else, enter the federal
old age security system. This creates a dynamic between the federal old age
security system and provincial disability systems that neither was expected
to accommodate. The two systems differ, are unclear or conflict in several
ways, including:
• the treatment of earned and unearned income;
• medical, dental, drug and other benefits;
• asset exemption and qualifying limits; and
• the treatment of trusts.
The treatment of discretionary trusts is the most significant issue of concern
here. Individuals receiving provincial disability benefits are often the beneficiaries
of trusts that augment their modest disability benefits. There is concern
that federal policy will diminish the utility of trusts as planning tools
for families with disabled members.
Solution
Establish protocols between the federal and provincial governments to address
the issues of transition from disability benefits to old age security. Ensure
that tools and mechanisms for securing the future retain their value when
persons with disabilities turn 65. Implement laws and policies to protect
the interests of persons with disabilities turning 65.
Support the Creation of a Provincial Disability Tax Deduction
Issue
Provincial governments have the jurisdiction to provide disability income
(prior to age 65) and disability services. Provincial investment is primarily
in the supply side. This limits the options available to persons with disabilities
and their families. This is a disincentive to family investment; and it ties
persons to services that often preserve barriers to relationships and citizenship.
Persons with disabilities, families and provinces all need mechanisms that
will:
• provide opportunities for individualized solutions that utilize the
capacities of the person, the families and the community;
• stimulate systemic change;
• recognize contributions and leverage investments; and
• promote collaboration and innovation.
Solution
Provincial governments have had the capacity for several years to enact refundable
and non-refundable tax credits and low-income tax reductions since the ratification
of the joint federal/provincial/territorial tax-on-income (TONI) paper in
1998. Some provinces, for example Newfoundland, have utilized this mechanism
to benefit citizens with disabilities and their families.
Investment through the tax system in a provincial disability tax credit, deduction
or rebate has the potential to efficiently accomplish, promote or support
many of the social policy goals of the Federal Government, provincial governments,
families and persons with disabilities.
These social policy goals might include:
• Investment in the development of social networks;
• Enabling individuals, families and communities to utilize their capacities
to solve their own problems;
• Increasing choices available to individuals with disabilities and
families, including the option of individualized funding;
• Promoting a shared responsibility; and
• Leveraging investment by families and the Federal Government
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