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Under the new regulations, the maximum fee that a promoter can accept or charge is $100 for helping to complete the DTC application form
It’s taken more than five years, but it appears that legislation to significantly limit the amount that consultants can charge for assisting persons with disabilities or their family members in applying for the disability tax credit (DTC) will finally become effective.
The DTC, which can be worth between $1,500 to $2,700 of combined federal and provincial tax relief, depending on province of residence, provides tax relief for non-itemizable disability-related costs for an eligible individual who has been certified by a qualified medical practitioner as having a “severe and prolonged” disability. The credit amount can also be transferred to a supporting spouse, parent or other immediate family member of the individual with the disability.
Qualifying for the DTC can be challenging, depending on the type of disability. To qualify, the individual with the disability (or representative) must complete Part A of Form T2201, Disability Tax Credit Certificate . A medical practitioner must then fill out Part B. There’s no guarantee the application will be accepted by the Canada Revenue Agency even if the form is properly completed and certified.
As a result, some Canadians have turned to consultants to help apply for the credit, both for the current year and up to nine prior tax years. Indeed, in the past decade, a mini-industry has emerged of consultants offering to help file DTC claims. There’s even an industry association: the Association of Canadian Disability Benefit Professionals. According to its website, the association consists of 14 organizations across the country whose employees, called “disability benefit professionals,” assist their clients “in navigating through the challenging process of obtaining the … DTC.”
An estimated 1.8 million Canadians over the age of 15 live with a severe disability and 1.2 million individuals claimed an amount for the DTC for 2015. Consultants charge up to a 40-per-cent fee to help people collect their DTCs. Some consultants even require their clients to sign over a percentage of future years’ DTCs. These fees can add up, especially when multiple years are involved.
The government cites an example of a DTC-eligible adult, residing in Ontario in 2018, who could be entitled to a combined federal-provincial income tax credit of $1,658 for claiming the disability amount for themselves. As the DTC may be claimed for a maximum of 10 years, the claimant can also request a reassessment of each of the nine prior taxation years. If eligible for the DTC for all those years, the combined income tax refund could reach approximately $15,500. A consultant that charges an adult claimant the most commonly used contingency fee of 30 per cent of the resulting tax refund would currently be compensated $4,650.
The government felt that persons with disabilities (and their supporting family members) have been paying “excessive fees to certain promoters” for their assistance in making a DTC request. It is estimated that promoters collected a total of between $9.5 million and $25.4 million in approximately 36,000 DTC requests for the 2018 calendar year alone.
Legislation to curb these fees can be traced back to a 2012 private member’s bill by long-serving Conservative MP Cheryl Gallant of Renfrew-Nipissing-Pembroke. She first became aware of this issue when one DTC consulting firm began targeting soldiers in her riding, encouraging them to apply based on post-traumatic stress disorder and charging fees contingent on a percentage of the government money collected. “There is no limit whatsoever on the fee they can charge right now,” Gallant said at the time. Her goal in introducing the bill was “so that the people who the tax credit is intended for can reap most of the benefits.”
But the legislation, which received royal assent back in May 2014, has not been in force since the government had not published the necessary regulations that would set out the maximum fee promoters could charge. Those regulations were finally released on June 1. “It’s despicable that this government waited until the cusp of an election to introduce these regulations,” Gallant said in an interview this week. What took so long? “Lobbyists descended upon (Ottawa),” she said.
Under the just-released Disability Tax Credit Promoters Restrictions Regulations, which could become effective as early as next month, the maximum fee that a promoter can accept or charge is $100 for helping to complete the DTC application form or $100 per tax year where the fee is contingent upon the DTC claim succeeding.
Under the rules, a “promoter” is defined as a “person who, directly or indirectly, accepts or charges a fee in respect of a disability tax credit request.” This includes tax preparers, tax consultants, financial services providers, accountants and lawyers, or any other person who charges a fee to assist a taxpayer in submitting form T2201 or claim or transfer the DTC on their personal tax return. Of note, medical practitioners, whose only role is to certify the extent of a patient’s medical condition for purposes of a DTC request, are not considered promoters, so there is no limit on the fees they may charge to complete the medical portion of the form.
“The fees charged by some promoters for their assistance in completing a DTC request are considered excessive, and contrary to the policy intent of the Income Tax Act of providing disability-related tax credits and benefits to persons with disabilities and their supporting family members,” the government stated. “The (government) decided that measures were needed to protect Canadians living with disabilities and their supporting family members from being charged more than what is considered adequate compensation for the services rendered.”
Gallant said her office regularly helps her constituents apply for the DTC at no cost whatsoever. “It only takes a few minutes and doesn’t justify the thousands of dollars that promoters are scooping into their coffers,” she said.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Estate Planning with CIBC Financial Planning & Advice Group in Toronto.
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