Canada Gazette, Part I, Volume 153, Number 22: Disability Tax Credit Promoters Restrictions Regulations

June 1, 2019

Statutory authority
Disability Tax Credit Promoters Restrictions Act

Sponsoring agency
Canada Revenue Agency

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Certain fees charged to persons with disabilities or their supporting family members for assistance in completing a “disability tax credit request” (DTC request) are considered to be excessive and contrary to the policy intent of providing disability-related credits and benefits under the Income Tax Act to persons with disabilities and their supporting family members. The Disability Tax Credit Promoters Restrictions Act (the Act) was enacted to restrict the service fees that are charged or accepted directly or indirectly by persons, referred herein as “promoters,” who assist persons with disabilities, or their supporting family members, in completing a DTC request that is filed with the Canada Revenue Agency (CRA). Pursuant to the Act, a maximum fee must be prescribed by regulation; until this is done, the Act remains inoperative.

Description: The proposed Disability Tax Credit Promoters Restrictions Regulations (the Regulations) would establish the maximum fee that a promoter can accept or charge in respect of a DTC request as

  • (a) $100 for a DTC request made for a determination of disability tax credit eligibility; and
  • (b) $100 per taxation year for a DTC request in respect of a deduction for an individual or for a dependant, or in respect of any deduction or overpayment of tax under the Income Tax Act that is contingent upon DTC eligibility for that individual or for a dependant.

Rationale: The policy intent of the Act is to limit the fees charged by DTC promoters for their assistance in making a DTC request in order to ensure that the income tax refunds generated by tax credits, which are intended to compensate for some of the additional expenses assumed as a result of living with a disability, remain at the disposal of those who are entitled to them, and who need them most.

Persons with disabilities and their supporting family members have been paying what are considered excessive fees to certain promoters for their assistance in making a DTC request. It is estimated that promoters collected between $9.5 million and $25.4 million for their services in respect of approximately 36 000 DTC requests for the 2018 calendar year. The proposed Regulations are in line with the policy intent of the Act and are needed to make it operational.

Issues

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 of Canada 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. The Act was enacted to limit the fees that can be charged or accepted directly or indirectly by persons who assist persons with disabilities or their supporting family members in completing a DTC request to a prescribed maximum fee, as set out by regulation. The Act remains inoperative until regulations are made to establish the maximum fee.

Background

In order to protect Canadians living with disabilities and their supporting family members, the Act, which received royal assent on May 29, 2014, was enacted to limit the fees that can be accepted or charged, directly or indirectly, by a promoter who makes a DTC request to the CRA on behalf of a claimant (i.e. an individual who is the subject of a DTC request or who has a dependent on behalf of whom a DTC request is made). The Act defines “promoter” as a “person who, directly or indirectly, accepts or charges a fee in respect of a disability tax credit request.” This definition includes tax preparers, tax consultants, financial services providers, accountants and lawyers, or any other person who charges a fee to assist a taxpayer to submit form T2201 DTC Certificate (DTC Certificate), or claim or transfer the disability-related tax deductions on their T1 Individual Income Tax and Benefits Return. 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” under the Act.

To support the implementation of the Act, the maximum fee that a promoter can accept or charge for these services is to be prescribed in the proposed Regulations. The Act will be brought into force through an Order in Council once the Regulations are made.

The Income Tax Act provides for several tax credits and deductions for persons living with a severe and prolonged impairment in physical or mental functions or their supporting family members. These credits and deductions include the disability tax credit (DTC) for mental or physical impairment for oneself or a minor or adult dependant, the children’s arts or fitness amounts (available for the 2012 to 2016 taxation years), the child care expenses deduction and other important tax relief measures that are intended to compensate for some of the additional expenses carried as a result of living with a disability. The DTC and other non-refundable tax credits are claimed by the taxpayer on their T1 Individual Income Tax and Benefits Return that is filed with the CRA at the end of each taxation year.

All provinces and territories also provide for their own disability-related tax credits. Residents of all provinces and territories, including Quebec, claim their federal tax credits on the federal T1 Individual Income Tax and Benefits Return; however, Quebec residents claim their provincial tax credits separately, on Quebec’s Income Tax Return. For the purposes of the Act, a DTC request relates to requests for federal disability-related tax credits and to provincial or territorial credits (excluding Quebec, where residents have to file a separate Certificate Respecting an Impairment directly with Revenu Québec).

The federal disability-related tax credits and the provincial or territorial credits serve to reduce the taxpayer’s income tax payable (in some cases reducing it to zero), which results in an income tax refund where amounts deducted at source or previously remitted exceed the amount of tax payable. The Income Tax Act also allows a taxpayer to request a reassessment, for up to nine prior taxation years, in addition to the current taxation year, should they wish to amend a prior year’s tax return, which may result in a refund of taxes paid in these previous years. This can be done by submitting either a T1 Adjustment Request – T1ADJ or a signed letter to the CRA. The DTC Certificate has been simplified and modified to include the option to request automatic reassessments for prior years for their own disability claims and for dependents under the age of 18.

As at December 31, 2017, there were nearly 1.3 million individuals with an accepted DTC Certificate and close to 800 000 individuals who claimed the DTC. The total tax relief provided in relation to the DTC is estimated at over $1 billion annually. For 2018, it is anticipated that this tax relief could total $1.4 billion.

Determination of eligibility for disability-related tax credits

The first step in applying for a determination of eligibility for the disability amount and other disability-related benefits and credits is to complete the applicable sections of Part A of the DTC Certificate and sign it. The applicant or their representative is asked to provide the name and contact information of the person with a disability and answer a few questions regarding any supporting family member.

The second step is to have the applicant’s medical practitioner complete Part B of the DTC Certificate in order to attest to the effects of the person’s impairment on their basic activities of daily living. The responsibility for completing most of the DTC Certificate rests with the medical practitioner.

The last step is to submit the completed and signed DTC Certificate to the CRA. The CRA will review the application in order to determine if the person meets the eligibility requirements of the Income Tax Act for the DTC based on the information provided by their medical practitioner. Once the application is approved, the CRA will send the applicant a Notice of Determination identifying which taxation years the applicant is eligible for the DTC. If the applicant is eligible for the DTC for prior taxation years for which they have already filed their T1 Individual Income Tax and Benefits Return, the applicant can also request a reassessment for up to nine prior taxation years. Applicants do not need to submit a new DTC Certificate every year, unless the CRA requests one.

Estimate of the fees charged

As with any taxpayer, persons with disabilities or their family members can complete their income tax return, or request a reassessment to a prior year’s tax return, either on their own or with the assistance of any other person. However, over the last several years, the CRA has observed an increase in the number of specialized service providers or promoters that approach individuals who are potentially eligible for disability-related tax credits under the Income Tax Act, or their supporting family members, to offer their services in the preparation of the DTC Certificate and the related reassessments by helping them complete their T1 Adjustment Request – T1ADJ. These promoters often contend that completing the necessary forms and claiming the various tax credits is difficult, and offer their services on a contingency fee basis — charging between 15% and 40% of the resulting income tax refund.

For example, for the 2018 calendar year, a DTC-eligible adult, residing in Ontario could be entitled to a combined federal-provincial income tax refund 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 9 prior taxation years. If eligible for the DTC for those years, the combined income tax refund for all years could reach approximately $15,500. Income tax refunds generated by claims for the DTC with respect to minors residing in Ontario can range from $2,625 for the 2018 calendar year to approximately $24,600 for that taxation year plus nine prior eligible taxation years. A promoter that charges an adult claimant the most commonly used contingency fee of 30% of the amount of the resulting tax refunds would currently be compensated from approximately $497 to $4,663 for their services. These services include the relatively straightforward task of assisting the adult applicant with completing Part A of the DTC Certificate and then assisting in claiming disability-related credits on their T1 Individual Income Tax and Benefits Return for the current taxation year and requesting a reassessment for all eligible previous taxation years. In the case of a minor eligible for the DTC, a 30% contingency fee can generate fees ranging from approximately $787 to $7,383.

In 2018, the CRA received about 240 000 footnote 1 new applications for a determination of eligibility for the DTC. It is estimated that 5% or 12 000 applications are prepared with the assistance of promoters each year. The CRA statistics show that many taxpayers request reassessments of prior taxation years. It is therefore estimated that the 12 000 determinations of DTC eligibility per year prepared with the assistance of promoters could result in approximately 24 000 reassessments for prior years, for a total of 36 000 DTC requests per year being third-party assisted.

Objectives

The objective of the proposed Regulations is to support the implementation of the Act by setting the maximum fee permitted to be charged for services relating to a DTC request.

Description

The proposed Regulations would establish the maximum fee that a promoter can accept or charge in respect of a DTC request as

Regulatory development

Consultations

During public consultations held from November 4 to December 15, 2014, the CRA heard from nearly 900 Canadians: over 80 individuals participated in the in-person sessions (held in Vancouver, Toronto, Montréal and Halifax), over 750 comments were provided online, and over 50 written submissions were received. These stakeholders were Canadians with disabilities, supporting family members, promoters, tax professionals, medical practitioners, associations representing persons with disabilities and members from the general public. The Disability Tax Credit Public Consultations report, available on the CRA website, provides a summary of the public consultation input received. As part of these consultations, participants discussed various topics, including the fee structures and proposed options for the maximum fee, such as

Participants also made suggestions as to which cost elements should be considered in determining a fair maximum fee, such as the time it takes to fill out the forms and returns, the hourly rate of pay for some professionals, and whether any promoters, like accountants and lawyers, should be exempt from the new reporting criteria. Although the term “promoter” was universally disliked, it is the language used in the Act. The proposed maximum fee was developed taking these extensive consultations into account and reflects fair market value for the type of services being offered.

It is expected that most Canadians, and in particular the disability community, will be supportive of the proposed maximum fee as it leaves more money in the hands of persons with disabilities and their supporting family members. However, as the proposed fee represents a significant decrease when compared to the fees currently charged by promoters who operate on a contingency fee basis, it is anticipated that some promoters will not be supportive.

In October 2018, the CRA presented a number of options for setting the maximum fee to the newly re-established Disability Advisory Committee (DAC). The role of the Disability Advisory Committee is to provide advice to the Minister of National Revenue and the Commissioner of the CRA on

The DAC discussed the need to strike a balance between ensuring that vulnerable populations (such as individuals with disabilities) are not financially disadvantaged and adequately compensating those that are helping people get the benefits to which they are entitled. Overall, the DAC was of the view that the fee should be set at an affordable rate for the applicant, should be simple to communicate and understand, and ensure that promoters are adequately compensated for their time to ensure legitimate businesses can continue to operate and provide affordable services to this vulnerable community. It also recognized that while most applications require little effort, others might require additional work on the part of the promoter.

After considering the advantages and disadvantages of each of the options presented, the DAC indicated that the fixed dollar amount option as described above was the preferred option. Although the majority of the members of the DAC preferred this option, some expressed concern that this approach still allowed promoters to charge too much while other DAC members warned that the cap might be too low.

Other improvements

While not part of the proposed Regulations, the CRA has also simplified and clarified the DTC application process based on the input received during the public consultations, by implementing new administrative measures, which will greatly reduce the time spent in completing the necessary paperwork. Improvements include

The CRA will continue a dialogue with the disability community to further simplify the DTC application process and improve communication in order to better meet the needs of Canadians with disabilities and their supporting family members.

Modern treaty obligations and Indigenous engagement and consultations

In accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, a modern treaty implications assessment was conducted. As no new programs or services will be brought forward as a result of the proposed Regulations, the assessment did not identify any potential modern treaty implications.

Instrument choice

The policy intent of the Act is to limit the fees charged to persons with disabilities and their supporting family members for requesting the tax credits and benefits that they are entitled to receive to a maximum fee prescribed by the Regulations. There are no non-regulatory options available for limiting these fees. The baseline scenario (i.e. maintaining the status quo, whereby there is no maximum fee) does not meet the policy intent of the Act. As a result, persons with disabilities and their supporting family members would continue to pay certain fees that are considered excessive for making DTC request. In addition, the Act would remain inoperative, which is contrary to Parliament’s intent.

Although a consensus did not emerge from the public consultations held in 2014, the CRA did analyze various fee models put forward. These included fees based on

The proposed $100 maximum flat fee was chosen and determined as a reasonable cost for the services provided by promoters, by means of

Each of the options listed above were also presented to the DAC in 2018. After considering the advantages and disadvantages of each of the options, the DAC indicated its preference for the fixed dollar amount option. As a result, the maximum fee charged could range from $200 (for completing Part A of the DTC Certificate and a T1 Individual Income Tax and Benefits Return for the current taxation year) to $1,100 (for completing Part A, a T1 Individual Income Tax and Benefits Return for the current taxation year, plus a request for adjustments of previous taxation years to a total of 10).

It is important to note that the maximum fee does not apply to the portions of the T1 Individual Income Tax and Benefits Return that are not contingent on a determination of DTC eligibility. For example, fees charged by a promoter to claim the basic personal amount; Canada Pension Plan or Quebec Pension Plan contributions or employment insurance premiums paid through employment; charitable donations; and/or tuition amounts are not limited by these Regulations.

When the Act was being developed, consideration was given to exempting certain promoters from having to notify the Minister of National Revenue that they had accepted or charged fees in excess of the maximum fee. Exempt promoters would still be liable for penalties, but may not be subject to fines for failing to report the overcharge to the CRA. The Act provides that “exempt promoters” be prescribed in the regulations. To ensure that all persons assisting with a DTC request are compliant with the legislation, the CRA will not be proposing any exemptions at this time.

Regulatory analysis

Benefits and costs

A cost-benefit analysis was completed by the CRA for the proposed Regulations. The results of the analysis estimated that in the 2018 calendar year, promoters assisted with approximately 29 880 claims for the DTC for adults with disabilities, charging between $7.2 million and $19.2 million in service fees. It is estimated that promoters charged a further $2.3 million to $6.2 million for assisting with roughly 6 120 claims for the DTC in respect of minors with disabilities. Depending on what contingency fee is currently being charged by promoters, this represents an estimated $9.5 million to $25.4 million in total promoter revenues for assisting adults and minors with claims for the DTC.

These estimates were calculated based on

Following the implementation of the proposed Regulations, which would establish a maximum fee of $100 for each element of the DTC request, it is estimated that for 2019, for example, promoters’ revenues, could be approximately $4.8 million annually, resulting in a loss of revenues of approximately between $4.7 million and $20.6 million annually, and instead allow these same amounts to remain in the hands of their clients (taxpayers with disabilities and their supporting family members). These amounts represent the lowest and highest estimates of the fees charged by promoters for requests for a determination of eligibility for the DTC (at the lower end of the range) and for the assessment of 1 to 10 taxation years (on the higher end of the range). The loss of revenue is expected to increase slightly over time as the number of applicants increases.

Cost-benefit statement (measured in 2019 Can$)

A. Quantified impacts
Costs, Benefits and Distribution 2019 2028 Total
(present value)
Annualized Equivalent
Benefits Persons with disabilities and supporting family $4.7 million to $20.6 million $5.4 million to $23.8 million $35.5 million to $154.6 million $5.1 million to $22.0 million
Costs Promoters $4.7 million to $20.6 million $5.4 million to $23.8 million $35.5 million to $154.6 million $5.1 million to $22.0 million
Net benefits 0 0

B. Qualitative impacts

Short list of qualitative impacts (positive and negative) by stakeholders.

A copy of the cost-benefit analysis can be requested by contacting the CRA through the contact information provided below.

Small business lens

The proposed Regulations are expected to result in a loss of revenue for promoters, some of whom may be considered small businesses. The industry numbers provided by Statistics Canada’s Business Register Division (December 2011 estimates) show that approximately 64 000 businesses could be considered to meet the definition of “promoter.” Of those businesses, over 99% are considered small businesses. Given that forgone revenues are considered an incremental impact for the purposes of this analysis, the small business lens would apply.

The proposed Regulations could have a significant negative impact on the annual revenue of some promoters. This is because the Act requires that the Regulations prescribe a maximum fee, and based on consultations with stakeholders, it is understood that the proposed maximum fee is lower than what some promoters currently charge. Such negative impact is consistent with the overall purpose of the Act. As noted earlier, the Act is intended to restrict the fees charged by promoters; the Regulations only set the maximum fee.

The implementation of the proposed Regulations, which would establish a maximum fee of $100 for each element of the DTC request, could reduce promoters’ revenues by between $4.7 million and $20.6 million annually for 2019, and instead allow these same amounts to remain in the hands of their clients, namely taxpayers with disabilities and their supporting family members.

Notwithstanding the anticipated revenue impact, the proposed Regulations could also result in benefits for some small businesses as a result of potential increases in market share. Once implemented, the prescribed maximum fee may deter some businesses from using predatory marketing practices or from charging unfair rates for the nature of the required work. In addition, promoters may choose to adjust their business models to serve a larger group of taxpayers, since the maximum fee is applied for each DTC request that is made. In other words, it could be more profitable for promoters to help a larger group of taxpayers, instead of focusing solely on taxpayers with larger anticipated DTC refunds.

Small business lens summary
Number of small businesses impacted 63 707
Number of years 10
Base year for costing 2019
  Present
Value
Annualized Value

TOTAL REVENUE LOSS
(all impacted small businesses)

$35.5 million to $154.6 million $5.1 million to $22.0 million

Loss of revenue per impacted small business

$557 to $2,426 $79 to $345

One-for-one rule

The one-for-one rule does not apply, as the proposed Regulations do not increase or decrease the amount of administrative burden imposed on business. Under the Act, if a promoter has charged a fee in excess of the prescribed maximum fee, the promoter is required to report this to the Minister of National Revenue. The proposed Regulations do not require businesses to fulfill any new reporting requirements.

Regulatory cooperation and alignment

This regulatory proposal is not related to a work plan or commitment under a formal regulatory cooperation forum.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that the proposed Regulations would not result in positive or negative environmental effects; therefore, a strategic environmental assessment is not required.

Gender-based analysis plus

A gender-based analysis plus (GBA+) was completed for this regulatory proposal. It is possible that taxpayers may benefit from this initiative differently based on various socio-economic factors, such as gender, sex, age, income level, disability, language, or Indigenous status. No GBA+ impacts (positive or negative) have been identified specifically with the setting of a maximum fee in the proposed Regulations (in and of itself). However, following implementation of the proposed Regulations, the Act would become operational and it is anticipated that this will have a positive impact on the disability community. While all Canadians completing a DTC request may benefit from the implementation of the Act and the proposed Regulations, Canadians from certain demographic groups, such as seniors, women and low-income individuals, may experience greater direct benefits.

Implementation, compliance and enforcement, and service standards

The Act requires those who accept or charge fees in excess of the prescribed maximum to notify the Minister of National Revenue in writing of this fact. The administration of this reporting requirement and the penalty provisions of the Act will be carried out by the CRA. The CRA will be responsible for developing the authorized form by which promoters will notify the Minister when they have exceeded the maximum fee. The deadline to file this notice will be established in guidelines as an administrative measure outside of the Regulations.

When the Minister is advised that a promoter has exceeded the maximum fee, the CRA would review the case, investigate and determine appropriate next steps. The CRA generally takes a graduated approach to compliance enforcement that moves from influencing compliance to enforcement. The Act provides authority for the Minister of National Revenue to impose a significant penalty in cases when a promoter accepts or charges a fee that exceeds the maximum fee prescribed by the Regulations.

The CRA plans to develop a compliance strategy that would involve not only internal operations but also taxpayers themselves. On a preliminary basis, it is anticipated that employees engaged in field operations would identify promoters and trends for possible non-compliance issues; annual compliance projects for promoters would be conducted by means of CRA’s internal information management and information technology (IM/IT) systems; and enhanced communication products and outreach activities would be used to help taxpayers, promoters and medical practitioners better understand the process of completing the DTC form. In instances where an individual comes forward with complaints of excessive fees, the CRA will investigate the complaint and ensure that penalties, and possibly fines, are applied, if necessary.

This compliance strategy would build on the existing enforcement framework in the Income Tax Act that is applicable to the DTC, with such modifications as the circumstances require, for individuals, promoters, and medical practitioners who willfully misrepresent impairments in physical and mental functions.

Contact

Joanne Heidgerken
Director
Special Programs and Partnerships Division
Canada Revenue Agency
Email: Joanne.Heidgerken@cra-arc.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to section 9 of the Disability Tax Credit Promoters Restrictions Act footnote a, proposes to make the annexed Disability Tax Credit Promoters Restrictions Regulations.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Denyse Bertrand, Senior Policy Analyst, Legislative Policy Directorate, Canada Revenue Agency, 320 Queen Street, Place de Ville, Tower A, 6th Floor, Ottawa, Ontario K1A 0L5 (tel.: 613‑670‑9546; fax: 613‑954‑0896; email: denyse.bertrand@cra-arc.gc.ca).

Ottawa, May 16, 2019

Julie Adair
Assistant Clerk of the Privy Council

Disability Tax Credit Promoters Restrictions Regulations

Maximum Fee

Setting of maximum fee

1 (1) For the purposes of subsection 3(1) of the Disability Tax Credit Promoters Restrictions Act, the maximum fee for a disability tax credit request made by a promoter is set at

Total fee accepted or charged

(2) If more than one disability tax credit request is made in respect of a claimant for a taxation year under either paragraph (1)(b) or (c), or both, the total fee that a promoter accepts or charges must not exceed $100.

Adjusted Maximum Fee

Inflationary adjusted year

2 (1) In this section, inflationary adjusted year means 2025 and every fifth year after that year.

Maximum fee adjusted on December 1

(2) Subject to subsections (3) and (4), the maximum fee set out in section 1 is to be adjusted on December 1 of a particular inflationary adjusted year so that the maximum fee is equal to the greater of

Application of adjustment

(3) The adjustment referred to in subsection (2) is to be applied only if the amount determined under that subsection exceeds the amount of the maximum fee described in the description of A in paragraph (2)(a) by $5 or more.

Rounding

(4) If the adjustment referred to in subsection (2) is applied, the maximum fee determined under that subsection is to be rounded to the nearest dollar or, if the result is equidistant from two consecutive dollar amounts, to the higher dollar amount.

Consumer Price Index

(5) In this section, the Consumer Price Index for any 12-month period is the result arrived at by

Coming into Force

S.C. 2014, c. 7

3 These Regulations come into force on the day on which the Disability Tax Credit Promoters Restrictions Act comes into force, but if they are registered after that day, they come into force on the day on which they are registered.